Conventional Knowledge Challenged

The conventional knowledge that it is nearly always preferable for people to start saving and investing for retirement as early as feasible is now being called into question by research from the Journal of Portfolio Management. Retirement strategy is frequently based on the idea that earlier saving is always preferable, primarily because of the power of compounding. However, this assumption is frequently not measured against a useful standard, it says. Instead, a lifecycle model, in which rational people distribute resources across their lifespan with the goal of preventing significant fluctuations in their standard of living, would serve as a reasonable benchmark. After constructing and analyzing a ‘lifetime savings consumption model,’ the research concludes that most young people shouldn't actually be investing for retirement. For these workers, it is often necessary to spend all of their money when they are young and to begin saving for retirement only when they are in their middle years as over the course of their careers, most employees typically see significant salary increases.

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