Let’s face it. All of us, hard
working folks have so much going on that we tend to live for the here and now.
When we make money, we pay our bills, we pay down debt. We leave a little aside
for “disposable income” (i.e., restaurant meals, movies, vacation, hobbies,
home improvement and of course the kids). Well…most of us.
When we stop and take a look
back, what’s left? For many American’s
their home, if they have one, is the only real savings they have, come
retirement. Another chunk can come from any potential inheritance Mom &
Dad might leave you. Maybe you have a
Whole Life insurance policy that has a cash surrender value. Maybe you have a
little stashed in a savings account or in an IRA or employer 401K plan. Then
you have some Social Security Benefits; not nearly enough to really sustain
your current spending levels. Many government workers have it really good in
that they get guaranteed defined benefits, typically a percentage of their
ending or highest salary until death. Yep, these legacy costs make democracy
very expensive. (That’s another story)
Now think of what your expenses
will be. Healthcare costs are huge as you get old. Especially, if you have
health problems. Insurance or Medicare will not cover it all. That wonderful
house you paid off; now needs a new roof, plumbing work, a new kitchen and bathroom
and new HVAC system. You need a new car. You have to pay real estate taxes and
insurance for home and auto. You don’t have kids anymore but, hey now you have
grandkids. Who could say no to those little rug rats? How about an occasional
vacation? Have to do a few of those before you find yourself in a pair of
senior Pampers!
All is not lost. Plan for that retirement as early as
possible. Like right out of college. Forego some modest luxuries if you
must today so that tomorrow you will have a little more. Count on the fact that
we will have various economic cycles and that IRA’s and 401K plans as well as
savings invested in mutual funds could loose significant values. (Like they did
starting in 2008. A 40% loss in value was common) If you have a windfall year,
try not to spend more, put some in reserve. Retirement accounts, and employer
plans are a huge benefit during your working years. Not only will you save for your
retirement but you will also save on income taxes at rates higher than they
might be when you retire. It’s possible a $10K savings in one year really feels
more like $7.5K when you consider tax savings. Then you have the employer match of many employer sponsored retirement
plans. THAT’S FREE MONEY! Take it and run, you earned it. Over a 40 year period (if you start at age
25) saving $2,000 a year and increasing this amount by $500, every 5 years at
4.85% avg. ROI, will yield a savings of about $359K, not taking into account
tax savings. The stock market and
hence mutual funds have a better rate of return on average for a balanced
portfolio. Of course no one can really predict a down cycle.
There are options and choices to
make now that can make a big difference in the long run. You do have to be
mindful. You do have to make those choices. But the real key is start as early
as possible. Talk to your tax advisor, your CPA. Put it all out and come up
with a clear plan and a goal. Need help, call me.
Retirement, is a very ugly word.
It suggests that you are disposed of. It says you are put aside. It says you
are no longer useful. Nonsense!……me I’m
going for a Really Long Vacation!
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