10 commandments of retirement planning
It's never too soon to begin thinking about how you'll fund your life once you leave the workforce. These guidelines can help you get your finances ready.
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"A rule of thumb is to assume you'll need 80% of your current annual income in retirement."
In what world is this a good rule of thumb? This might be true from age 66 to 75, but after that, your spending will drop like a stone! I am well into my 60's and both of my parents are still alive, healthy, and living in their condo. They have a VERY comfortable pension that nets them over six figures per year. Their spending is less than $35,000 per year and going steadily DOWN. I understand that we need to save lots of money, but that 80% prediction is just flat-out unrealistic, and wrong. Stop trying to scare us!
My solution to retirement is "TO DIE BEFORE MY MONEY RUNS OUT" !!! :~))
PS have a sense of humor!
It's not that complicated if you are fortunate enough (or deservingly) to exist with the means to set aside savings. It's simply a matter of planning and common sense. I am very aware, that there are a lot of people with different cercumstances out there, so apologies - this is not meant to offend:
1. Go to College, and/or please instill this value into your kids! I am not implying that college graduates are better people, just better prepared. The statistics are out there, those who get a college degree, on average make more money over the course of their life. (and p.s. an art degree does not provide a career path to a future financial windfall)
2. Do not rely or plan to rely on SS or a pension for you retirement. You should assume you are on your own when it comes to your retirement finances (and medical insurance). Everyone knows that nothing is certain when it comes to government assistance. If those assistance programs happen to be there when the time comes - great, an added bonus to your income.
3. Do not live beyond your means, and MINIMIZE DEBT. I admit, this is easier in a dual income household, but holds true regardless. Everyone wants new shiny toys, but as someone intelligently mentioned below, a 2 year old car is exactly that - a car that is 2 years older than a new one, but with someone else having taken the major hit in depreciation. Try to keep your mortgage/rent below 25% of your take-home pay. The mortgage crisis is a perfect example of people owning homes greater than what they could afford. Not all, but many people lost their homes because theysimply bought too much home, and then complained that it was the bank's fault for lending them so much. My wife and I are still in our first condo, which we would like nothing more than to move out of, and we bought in 2006 (bleh), but chose to only borrow 1/2 of what banks were willing to lend us for a home. So when my wife lost her job in 2008 and our home was worth 60% of what we paid for it, we were still able to squeak by on my income alone until she found work. Just because a bank will lend it, does not mean you will always be able to afford it. Let your kids take out student loans to pay for college! Everyone would love to give their kids a great head start financially, but if it comes down to choosing between your retirement and paying for your children's schooling - remember that you get (1) chance to retire, and your kids can always pay off their loans. I am 33 and still paying of mine, but at least I have the time ahead of me to do it.
4. Save NOW! Compounded interest is not imaginary. Regardless of averaging 7%, 5% or 3% interest, the more you invest now, the more you will have later. I recommend trying to save 8% annually when starting out, and as your income hopefully increases, try work up to 10%. It is very hard to make up for lost time, and you don't want to be starting your retirement planning at 50.
5. Plan for the worst. Though I do not disagree with road.rep's statement that your spending may decrease with age (noting that in their scenario, the parent's have a nice pension - which most people will not, and also keep in mind that major medical issues can put a halt to that financial comfort very quickly), why not plan to need 80%??? The worst that can happen is your have too much money when you retire!?!? I would be just fine having that problem, and if you did not help pay for your children's education, you will at least be able to leave them something when you are gone.
Divorce, Job Loss, Medical, Student Loans, Disability by act of God, Family disaster. I know most financial advisors preach this garbage listed in the article. I've been in this business for 30 years and maybe this article applies to 10% of the population, if that. The industry of Financial Investing and advising is a racket and the only way they make money is for you to play their game of in and out, in and out of financial products, or you're in products with high annual fees they benefit from. They need to put food on the table so their motivation is opposite of yours....
And another thing. Financial advisors continue to tell young people to take high risk. The truth is, the younger people with much more time should take less risk and they will come out far, far ahead versus the roller coaster and loosing big like the lost decade of 2000 to 2010.
I have what I think is a pretty good job. My debt is not out of hand. I still live paycheck to paycheck. Some months I have to decide weather to buy gas or food. How can I save for retirement?
I have resigned myself to working as long as I can get out of bed.
Uncle Sam wants your retirement! Retirement is of an ancient civilization that lasted about fifty years, welcome to the New, new world order!
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