Einstein allegedly called compound interest the “eighth wonder of the world”. The numbers prove why. Consider these eye-opening scenarios for a Kiwi investor…
- Starting at age 25, investing $500 monthly with a 7% annual return would accumulate $1,144,458 by age 65.
- Delay until 35, and the same $500 monthly grows to only $542,830.
- Wait until 45, and you’ll have just $239,780.
- Start at 55, and you’ll accumulate a mere $89,103 … not a lot to live a full life on for 20, even 30 or more years.
The cost of delaying your investment journey by just 10 years? A staggering $601,628. That can be directly attributed as the price of procrastination.
We often hear there are three phases of life when it comes to financial planning. This is true in a broad sense, but if you look closely, you can break them down even further.
The foundation years (0-18)
While we’re busy collecting cricket cards and watching the All Blacks, our parents typically shoulder our financial burden.
However, these formative years establish our money habits. Forward-thinking parents might start a savings account or invest in a children’s investment fund, setting up their kids for future success.
The study years (18-22)
Student life in New Zealand often means juggling part-time work with studies. While StudyLink helps many through university, student loans (and tacked-on living costs) can accumulate quickly.
Smart students use this time to develop financial literacy alongside their chosen field of study, understanding that today’s debt impacts tomorrow’s wealth-building capacity.
Early career (22-28)
Landing that first job marks the beginning of real financial independence. These years are crucial for establishing good financial habits as young people move to full-time earnings.
While KiwiSaver provides a foundation, young professionals should consider additional investment vehicles. The power of compound interest means every dollar invested at 25 works harder than one invested at 45.
A single $10,000 investment at age 25, if left to compound at 7% annually, can become $149,745 by age 65. That same $10,000 invested at 45 grows to a much smaller $38,697. That’s the compound interest miracle in action – a beautiful sight, no?
The learning curve (25-35)
Career development accelerates, bringing higher income potential. However, this phase often coincides with major life expenses: student loan repayments, saving for a house deposit, or starting a family. The challenge becomes balancing immediate needs with long-term financial planning.
Family formation (30-45)
Marriage, mortgages, and a ‘mini-me’ change everything.
School fees, larger homes, and family holidays compete with retirement savings. Many Kiwis focus solely on mortgage repayment, missing opportunities to diversify their investment portfolio. This is when professional financial advice becomes invaluable to ensure you’re not short-changing your future self.
Peak earnings (45-55)
With career maturity comes higher income, but also higher expenses. Children’s education, ageing parents’ care, and lifestyle creep can eat into potential savings. This period should be prime wealth accumulation time, not playing catch-up on retirement savings.
The pre-retirement sprint (55-65)
Traditional wisdom suggests starting retirement planning at this stage. However, waiting until the children are independent (an increasingly difficult feat with today’s costs), and the mortgage is manageable, means missing decades of compound growth. Starting earlier makes the journey less stressful and more successful.
Compound interest is your not-so-secret weapon. Time is your greatest ally in wealth creation. While you can compensate for a late start by investing more, you can never recover the lost power of early compound growth.
New Zealand Superannuation alone won’t fund the retirement lifestyle most Kiwis envision. The gap between government-funded support and desired lifestyle needs to be filled with personal savings and investments.
Whether you’re 25 or 45, the best time to begin is now. Every bit you can spare while you’re earning is like a grain of sand, slowly tipping the scale in your favour for a comfortable retirement. Or, in the case of compound interest, the grain of sand becomes a pearl – adding value and bulk with time.
Remember, diversification is key. Don’t rely solely on any single area – not property, not even KiwiSaver (as good as it is).
Much like your car, your investments need a regular check up with an expert to make sure everything’s in order. That way, your strategy can be adapted as your life or goals change … while keeping the end goal in mind.
Life gives us one shot at preparing for retirement. While the Kiwi “she’ll be right” attitude serves us well in many situations, retirement planning requires more deliberate action. A professional financial adviser can help create a roadmap to bridge the gap between your working years and retirement, ensuring your golden years truly shine.
Don’t lose thousands of dollars to procrastination. As the saying goes, the best time to plant a tree was 20 years ago. The second-best time is now.
The same applies to your financial planning. Mind that gap and start planning today – your future self will thank you for it.
