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Whether you’re just starting out in your career, you are a Gen-X-er sandwiched between your kids’ college expenses and aging parents’ needs, or you are a Baby Boomer eyeing retirement, starting early can help when it comes to your finances. Here are some reasons why.

When You’re Young—In Your 20s

We’ve all heard the famous quote by Albert Einstein, the one where he said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And it’s true. In many cases, if you start out early—perhaps in your teens or 20s—saving just a small amount each month, you can amass more money through time than if you start saving at a later age, even if you save a larger amount each month.

Investopedia uses this example:

Let’s say you start investing in the market at $100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesn’t begin investing until 30 years later, and invests $1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly. Who will have more money saved up in the end? Your friend will have saved up around $230,000. Your retirement account will be a little over $1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

When You’re Older—In Your 40s, 50s or Early 60s

As you head into retirement, there are a lot of moving pieces to consider. Timing is critical, and advance planning may help you end up with more spendable income. Here are some of the things you should know and think about:

1) Medicare Filing – Age 65

You are required to file for Medicare health insurance by age 65 if you are not working or covered by a spouse with a qualified health insurance plan, and Medicare (other than Part A) is not free. In fact, it costs more if your income is higher. Your Medicare premium is often deducted right out of your Social Security check, and premiums generally go up every year.

For 2024, the standard Part B coverage is $174.70 per month per person. For those with higher incomes, Medicare premium amounts are based on your income from two years prior. For couples filing jointly, the highest amount you might pay for Part B coverage is $594.00 per month per person for 2024.

So, depending on your income for the tax year two years prior to filing for Medicare, your premium could be from $174.70 to $594.00 in 2024, or somewhere in between. If you plan ahead, your advisor might help you plan to take a smaller income in the years prior to turning age 65 in order to keep your Medicare premium smaller.

2) Social Security Filing – Age 62, 66-67, 70 or sometime in between

Another moving piece in the retirement puzzle is Social Security. The youngest age you can file for Social Security is age 62, but a mistake some people can make is thinking that their benefit will automatically go up later when they reach their full retirement age. This is not the case. If you file early, that’s your permanently reduced benefit amount, and filing early at age 62 can reduce your benefit by as much as 30% according to Fidelity.

Conversely, waiting from your full retirement age up to age 70 can garner you an extra 8% per year. (At age 70, there are no more benefit increases.) Planning ahead for when and how you will file for Social Security can make a big difference in the total amount of benefits you receive over your lifetime.

3) Taxes In Retirement

Thinking that your taxes will automatically be lower during retirement may not prove true in your case, and it’s important to find out early if there is a way to mitigate taxes through early planning. Don’t forget that all that money you have saved up in your traditional 401(k) will be subject to income taxes—and even your Social Security benefit can be taxed up to 85% based on your annual combined or provisional income calculation.

And the IRS requires withdrawals. Remember that by law RMDs (required minimum distributions) must be taken by midnight every year beginning at age 73. Planning ahead to do a series of Roth conversions—shifting money in taxable accounts to tax-free* Roth accounts—might be indicated to help lower taxes for the long-term in your case, but these must be planned carefully and are not reversible.

Let’s talk about your financial and retirement goals and create a plan to help you achieve them. Don’t put it off—give us a call!

*In order for Roth accounts to be tax-free, all conditions must be met, including owning the account for at least five years.

This article is for general information only and should not be considered as financial, tax or legal advice. It is strongly recommended that you seek out the advice of a financial professional, tax professional and/or legal professional before making any financial or retirement decisions.



This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Certain services may be provided by affiliates of PCIA.

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Terri Lewis, CLU®, ChFC®

Partner, Financial Advisor
Prime Capital Investment Advisors
6201 College Boulevard, Suite #150
Overland Park, KS 66211
Call MK: (913) 491-6226