I am going to keep this post short - one topic at a time. In reality there are many considerations but you’re not going to read this if it takes more than a couple minutes.
The way that retirement plans work is to leverage market growth over time. Over time, the market goes up albeit unevenly. This is a FACT. If you don’t believe this - then we first need to have a conversation and I’ll show you the data that proves it.
Money grows COMPOUNDED over time.
A reasonable long term annualized return for the market is 9%.
If you save the modest amount of $5000 at the ages 20, 30 or 40, it grows in the market as shown below.
Age 20: $241,000 at age 65
Age 30: $102,000 at age 65
Age 40: $43,000 at age 65
DON’T GIVE UP! My point is not that you missed the boat and should give up if you didn’t start at age 20! In 2021 in a 401k plan you can save $20,500 each year and $27,000 if you’re over 50. In a Simple IRA plan, $13,000 and $16,000.
START NOW! Already saving - INCREASE NOW! Save what you can - gradually increase over time. If you want a more secure retirement, which you do - you have to sacrifice a bit. You also need to live within your means. If you allow peer pressure to cause you to “live big” and have no money leftover to save, you’re going to be in a vulnerable situation as you approach your more fragile elderly years.
This is a very important idea. If you saddle yourself with a very high budget and struggle to make ends meet - you won’t be able to save and allow your money to compound over time.
Future topics: What are typical sources of income in retirement? How should I invest in my company retirement plan. What are other priorities in my financial decision making?
We would love to have your comments and questions! Use the form at our Contact page.