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The Secret to a Secure Retirement (Plan Now!)

10/18/2011 12:54:29 PM

I think everyone can pretty much agree: NONE of us wants to depend on our Social Security system to serve as our primary source of money in retirement. Sadly, too many people do, and find themselves shocked by how little they have to live on in their sunset years. An unfortunate side of effect of this problem is that it’s causing more seniors to reenter the workforce, impacting employment opportunities for young people.
Would you like to avoid this situation?
This is my advice: Develop an investment program NOW that will provide sufficient assets for your retirement. How your wealth grows will be a function of the following:
1. How much you invest (more is better!)
2. The rate of return on your investments (higher is better!)
3. The time period over which you are investing (longer is better!)
In each case, the larger the amount, the greater the assets you’ll build. Therefore, your chances of accumulating significant wealth will be greater if you invest as much as you can (rather than being a big spender on “things”), as early in your career as you can. This will allow your returns to compound over a longer period of time. Strive to invest at least 15% of your income for retirement and take this into account in your budgeting.
Now here’s the really important part: Beginning your investment program as soon as you start your career should be a top priority. Save and invest early, regularly, and as much as you can in a diversified, long-term investment program. It will provide you with the best chances of building significant wealth for your retirement, achieving financial freedom, and giving generously to charitable causes.
Why is it so important to start as early as possible? It’s because of the power of compounding your returns over many years. Check out this example. If Kyle invests $2,000 per year at a 7% return from age 18 to 27 and lets it grow at that rate until he is 65 years old, he will have a much larger nest egg than Ashley who waits until 31 to start investing and puts $2,000 in each year until age 65! This is true even though Kyle only invested $20,000 versus Ashley’s $70,000! The math is mind boggling. That’s why it’s so important to begin investing as soon as your career begins.
If you want to live a lifestyle in retirement that is similar to your career years, you simply have no choice. By saving and investing 10-20% of your monthly income, you’ll be able to significantly supplement your retirement and Social Security income. Consider starting an automatic monthly investment plan that invests it in a diversified investment program according to an appropriate asset allocation among stocks, bonds, etc.
It’s not as intimidating as it may sound. Start familiarizing yourself with the financial markets. Learn about stocks (an ownership position in a company), bonds (longer-term loans that pay interest), mutual funds (pools of money invested in multiple securities for multiple shareholders), and the economy. Start reading the business news section of your paper/websites and watch financial networks (e.g., CNBC, FoxBusiness, and Bloomberg). Think of some different companies you’d like to invest in and build a “paper portfolio” to see how it would perform. Watch them rise and fall from day to day to acquaint yourself with how the markets move. Be SKEPTICAL of anyone claiming that they know how to predict the market. Be patient, disciplined, and diversified and think long term. It will help get you there.

How have YOU begun saving and investing NOW for retirement? What have been your biggest challenges in making this happen? We welcome your questions, comments, and suggestions!

Tagged as: finances, financial literacy, net worth, debt, wealth, life skills, spending, budgeting, retirement

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