This is not your father's retirement; it won't be your children's either. Retirement – what it means and how we get there – is constantly changing. Understanding today's world gets your retirement journey off to a good start, and keeps you ready for changes on the way.
Whether you're fresh out of college or ten years into the workforce, your first thought about retirement is probably...that it's very far off. That's understandable. Right now you're thinking about your career, perhaps starting a family or buying a house. It's not easy to imagine what your life may be like in your 70s.
But here's the thing: the retirement savings habits you establish now will serve you throughout your career, and putting time on your side by starting early will give you much greater freedom and flexibility later.
The Cost of Waiting
Retirement is a great place to be, but it's a long road to get there. Take the first step today! Take Action!
- Start saving today - don't count on tomorrow.
- Use as much time as possible to save and invest for retirement.
Every day is an opportunity to build your savings so you can live your retirement dreams.
If you haven't started saving – or if you aren't saving enough - here are some important things to consider:
- People are living longer – Your earning years may not be much longer than your retirement years.
- The level of income you'll need to afford the lifestyle you desire during retirement may well exceed your current living expenses.
- Time is money – The sooner you start saving, the more time your investments will have to grow.
Investing just $300 per month will grow to $787,444 in forty years, assuming an average annual growth rate of 7%. If you put off saving for retirement for even just five years, that number shrinks to $540,316. So that $300 a month that you didn't save for retirement may have afforded you $18,000 worth of small luxuries over those five years, but it leaves you with $247,128 less when you retire. There is no doubt that the cost of waiting is very high.
These investment returns are not the only missed opportunity if you don't start saving now. If you work for a company that matches a portion of your retirement account contributions, waiting also costs you that company contribution and the investment returns on that amount.
And don't forget about the tax advantage of saving for retirement. When you make retirement account contributions on a pre-tax basis, a smaller percentage of each paycheck goes to the IRS. More importantly, your retirement funds won't be subject to taxes until you begin making withdrawals after your retirement party.
Have More Questions?
If you’re going to say “I do”, here are some things you might want to do.
Are you marrying soon? Have you recently married? As you begin your life together, it's important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …
Plan for retirement.
There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.
Consider this: according to current Social Security Administration projections, the average 63-year-old is projected to live until age 84.1 So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.
Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.
This (strong) possibility means you may want to make saving for retirement NOW a higher priority.
In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.
Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.
Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.
Live within your means.
An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.
Save for college.
If you plan to raise children, it’s never too soon to start saving for college. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.
You need disability and life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who may be obese, diabetic, heavy smokers or drinkers.
Communicate to avoid surprises.
No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)
Build an emergency fund.
You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless.
Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.
1 – chicagotribune.com/business/sc-cons-0819-journey-20100819,0,1141623.story [8/19/10]
Who needs what? What’s the difference?
Everyone has an estate.
Rich or poor, it doesn’t matter. When you die, you leave behind an estate. For some, this can mean property, cash money, assets and more. For others it could be as simple as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.
Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? This (quite simply) is what estate planning is all about. Estate planning determines how your money and assets (property – both real and personal) will be distributed after your lifetime.
Who needs estate planning?
While it is absolutely possible to die without planning your estate, I wouldn’t say it is advisable. If you die without an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.
Why not just a will?
Did you know that your heirs may need to file a petition to probate your estate … even if you have a will? Basically, a will tells the world what you’d like to have happen, but other items (like properly prepared and funded trusts) can provide the tools to make things happen, and help your heirs to avoid probate.
So, what is “advanced” estate planning?
Advanced estate planning is generally something those with a very high net worth should consider. For example, if you are single and your net worth exceeds $5.25 million dollars, or if you are married and (as a couple) your net worth exceeds $10.5 million dollars, you should consider advanced estate planning. The main purpose of advanced estate planning is to reduce taxes. The use of unified credit, gifting strategies, trusts and more can help your heirs receive the highest benefits possible under federal and state laws.
Where do you begin?
Whether you need basic or advanced estate planning, I would advise you to speak with qualified professionals. A Financial Advisor can refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents. Many financial professionals have relationships with attorneys and accountants, so the advisor you consult may be able to refer you to the right specialists.