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Save early and often
Posted by WoB in Uncategorized on June 17, 2009
The more you have stashed away, the more prepared you are for whatever surprises lay ahead. You should view each paycheck as an opportunity. If you are able to save 20% of it, you will surely position yourself ahead of the pack.
Let’s say that you work toward retirement from age 25 to age 65. That is 40 years of savings and that is 40 years of compound interest. If you are able to put away $4000 in your first year and average a 9% return, it alone would turn into about $125,000. If you put away that same $4000 at age 45, you will have around $22 thousand at 65. This is a giant difference. Over five times more interest earned with the same dollar amount invested. It would be especially awesome if it was in a Roth account.
Try out this calculator for a quick look into this concept.
We know that it is much cheaper in the long run to fund your retirement early, and not only cheaper, but it allows you more flexibility as time goes on. If you are 50 and you have no savings, funding your nest egg with enough to take out around 80% of your preretirement income would be nearly impossible. If you started early, and got off on the right foot, it would almost take care of itself.
Another main reason to save 20% of your income is to get you used to living off of 80% of what you make. This is a great habit to get into for many reasons. It will ensure that don’t overspend for frivolous things and it will keep your savings balance always going in the right direction. It will also surely keep you spending less than you earn, even if you have to dip into savings every once in a while.
Living off less than you earn is the only way to save.
It is really difficult to increase your level of savings. If saving 20% is daunting, start small and with each raise; move up a percent or two. Also if you get a bonus or some other type of income, put away half of it if you can. These are great ways to start saving more.
What will retirement cost?
Posted by WoB in Retirement Planning, Uncategorized on June 16, 2009
There is a dollar amount that your retirement will cost you. You could never truly know what that number will be, but you can get a good estimation by entering some information into a web calculator. If you are interested, take a look at this retirement calculator.
Once you have that number, see if you are on the right track with this calculator. Obviously these are never exact as to your level of returns but they do give you a clue as to how prepared you really are. If you’ve never used one of these before, you may be surprised to find out that you are either over prepared, or underprepared. Hopefully not the latter, but if you are, maybe it’ll motivate you to get a move on.
As far as retirements go there are two categories, you either have to penny pinch your way through, or you have planned, saved, and lucked you way into having enough of a nest egg. A lot of hard work and planning goes into not having to work during your golden years. You will definitely want to be able to visit your grandchildren, or buy that golf cart, or sip margaritas on the beach. Get started early and these things could be a reality, if you get started late, you may have to put away 50% of your take home pay to just get close.
Hopefully for your sake, you’ve read something like this when you were 20 and used the information wisely, or you are 20 right now and you can make an early start. If you haven’t started yet, there will never be a better time. Check this out on what type of accounts to open.
Good luck to all of you. Hope to see you on that beach..