Most of us have heard of the famous Aesop fable, ‘The Tortoise and The Hare.’

The boastful hare always bragged how fast he was, until one day a tortoise, tired of hearing the hare boast, challenged him to a race.

The hare, thinking he had things under control and would never lose a race to a slow tortoise, decided he had plenty of time to stop and take a nap before reaching the finish line ahead of the tortoise.

Despite the odds against him, the tortoise walked and walked, slowly putting one foot in front of the other and never stopped until he crossed the finish line.

The rest of the animals in the forest all cheered in excitement as the tortoise crossed the finish line, they cheered so loudly that they woke up the hare.

Hare yawned and began to sprint to the finish line, but he was too late, the tortoise was already there, the tortoise had won!

The moral of that story is ‘Slow and steady wins the race’.

The same could be said when it comes to retirement planning.

When we are younger the retirement finish line is so far off that it gives us a false sense of security. Like the hare, we might feel that we can ‘nap’ along the way and make a sprint for it at the end and we will come out on top.

However, waiting to make a sprint to the retirement finish-line over the last few years is not a ‘plan’. We can expect a similar shock to that received by the hare when he saw the tortoise had beaten him to the finish line, except losing the ‘retirement race’ has far worse repercussions.

The benefits of starting a long-term investment plan when you are younger cannot be denied, and thanks to Bermuda’s mandatory pension system this investing head start for many of our younger segment of the population, should not be taken for granted, leading you to ‘take a nap’ on the way to the retirement finish-line.

Bermuda’s cost of living is one of the highest in the world, making basic needs a large percentage of our retirement expenses. If we include rising healthcare costs, and general inflation over time, we can begin to see that relying solely on our mandatory employee/employer contributions may not be enough.

One of the ways that is often overlooked, and can improve our chances of being able to afford the retirement lifestyle we want, is to take advantage of two investing principles known as dollar-cost averaging and the power of compounding.

Dollar-cost averaging combined with the power of compounding over time, can have a positive and dramatic impact on your total pension balance at retirement.

The investment principle behind dollar-cost averaging is that; if you regularly invest the same dollar amount, you’ll buy fewer shares when prices are high and more when prices are low — and your average cost will land somewhere in the middle.

Over time those regular contributions will also benefit from the power of compounded returns, earning returns on your returns.

Compounding is the ability for investment returns to earn potential returns of their own. So over time you can make money, not only on your original investment but also on your accumulated returns from earlier years.

Remember, it’s a marathon, not a sprint; so slow and steady investing through regular voluntary contributions to your pension plan, will allow you to receive the benefits from dollar-cost averaging and compounding.

You can have your HR department deduct voluntary contributions automatically from your paycheque so that systematic contributions are being made to your pension plan without you having to remember.

Even if you start small, for example, an additional contribution of $100 a month, now, may make tens of thousands of dollars of difference in retirement. The more you contribute, the more these savings may perform for you.

Many don’t focus on maximising the amount they can contribute to their pension plans and through proper budgeting, ‘finding’ that additional $100 or more, may be easier than initially thought.

If you’re already taking advantage of compounding and dollar-cost averaging by additional contributions to your pension plan, you can help make it even more powerful by increasing your voluntary contribution percentage.

Increasing your contributions to your pension plan together with an appropriate risk/reward investment strategy and a well-diversified pension portfolio will serve to boost your long-term retirement plan.

So next time you review your pension plan, remember these two basic principles and consider whether your retirement plan has you on a slow and steady path to building retirement wealth overtime or are you going to chance making a last minute sprint for the retirement finish-line?

Colonial Pension Services qualified team of retirement specialists is here to assist you with all your strategic retirement and financial planning needs.

Set up an appointment with us today to learn more about how we can help you with your retirement plans.

Jason Cook is the Senior Pension Consultant with Colonial Pension Services Ltd.