Retirement Planning – Getting To Easy Street The Easy Way

People who do not believe in Santa Claus, the Easter Bunny or the Tooth Fairy do seem to believe in the Retirement Fairy. The Retirement Fairy appears when you arrive at that magic age around 65 and decide to retire.  The Retirement Fairy spreads his (her) magic fairy dust so that you are able to live on less than half of what you lived on the day before you retired.  You have the same house, car(s) and the need for food and, unless you were very smart and paid off your mortgage, car(s) and all other debts, your overall expenses are the same as when you were working. Even if your mortgage is paid, you still owe property taxes and insurance, both of which will continue to rise year after year.  If you rent, you know from experience that your rent will increase almost every time you renew your lease.

Believing that you can live on much less after you retire is a BIG MISTAKE that you should not make. When you are retired every day is Saturday, except Sunday.  Now you get to do all those things you never got around to.  Those things you will get around to doing will cost money.  Life can, and probably will, get more expensive.  There are trips to take, maybe grandchildren to spoil, children who need a hand.  You may live into your 90s and as you age, your body, like your aging home and car, will require more maintenance.

If you believe that you will be able to get by on Social Security, take a good look at your Social Security statement and compare it to your pay.  Now from that Social Security figure realize Medicare premiums will be deducted.  And, Medicare will not pay for all of your medical expenses.  You will still need supplemental medical insurance to pay for what Medicare doesn’t cover. Realize also that Social Security payments are not necessarily tax-free.  If you do continue to earn money you could be liable for income taxes on your Social Security payments.

So what can you do?  Glad you asked!  Start saving and investing for retirement tomorrow.  Pay yourself first – that means that you set aside money to save before you pay any other bills.  If your employer has a retirement plan, buy into it, especially if there is a match to your contribution.  Invest in stock mutual funds – do not listen to those who broadcast that the stock market is the same as a Las Vegas casino, or that investing in stock mutual funds is the same as gambling, or that the stock market will crash and you will lose everything. Those salesmen want to sell you a “safe” investment product that will not provide the growth you need, but may provide the seller a large commission.

Now comes the tough love.  Set a realistic retirement goal – enough so that it will last you from retirement through age 99.  How about a goal of one million dollars?  That would provide you with $4,200 a month for 30 years. At age 35 you would have to invest $600 a month for 30 years.  Look at those numbers – you put aside $600 a month and then pay yourself $4,200 a month. That is the value of compounding. To get there from here put aside at least 15% of your gross pay.  If you can’t get there yet, put aside at least 5%.  When you get a raise, put it into your investments and keep doing that until you get to 15%.

I know the argument, “I can’t afford to save and invest.” You can’t afford not to. If you are under age 40, the million dollar goal is doable.  Over 40, it becomes a stretch.  Find the money.  Cut expenses. Work part time.  If pizza delivery really pays $16 per hour, 10 hours a week will let you put away $640 a month. And, if you only get to $500,000, that will still get you $2,100 a month until you reach 100. Better than just Social Security.

Start tomorrow.  Every month you delay is a month of compounding you have lost. Get going while you have the energy.  You won’t have it in your 70s, 80s and 90s.