When it comes to investing, due to the power of compounding, the earlier you start the better.
However, if you haven’t started to invest yet and have retirement on the horizon, don’t worry! That’s because it is still possible to build a nice retirement fund if you start investing when you turn 55.
The only difference is that you will need to invest a little bit more each year than you would if you were in your 20s or 30s.
Building a retirement fund at 55
With the Australian retirement age now 65 years and six months, if you’re 55 years young, you will have 10 and a half years to build a retirement fund from scratch.
According to Fidelity, the Australian share market has generated a return of 9.6% per annum over the last 30 years.
There’s no guarantee that this will be the case in the future, but we’re going to base our calculations on this return.
With that in mind, if you want to build a retirement fund of $300,000, you will need to invest a total of $16,000 into high-quality ASX shares each year for 10 and half years if you earn the market return.
If you’re planning to work a bit longer and expect to retire at 70, then you could reduce your annual investment. By investing $9,000 per annum for 15 years, your retirement fund would have grown to the $300,000 mark if you earned the market return discussed above.
Alternatively, perhaps you don’t want to reduce your investments and would rather a bigger nest egg? If that’s you, then you will be pleased to know that investing $16,000 per annum for 15 years would turn into a sizeable $540,000, ceteris paribus.
All in all, I believe this demonstrates that it’s never too late to starting building a retirement fund. Especially when there are easy investment options out there such as the Vanguard Australian Shares Index ETF (ASX:VAS) to help you on your way.
