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No Matter Your Age, Retirement Preparation is Key

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According to reference.com, as of 2014, approximately 4 million people retire every year, and from 2014 to 2034, approximately 80 million people are expected to retire.  But, according to stageoflife.com, in regard to the Baby Boomer Generation, only 64% of private-sector workers have any formal retirement plan, and fewer than half sign up for one!  Additionally, nearly 35% of Baby Boomers rely almost entirely on social security payments alone!

Even if you’re reading this article and you’re in your 20’s or 30’s, believe it or not, it’s important to begin at least thinking about retirement!  Yes, that’s correct; though your retirement may be far away, though you may be young, and though you may not even yet have a spouse and/or children, retirement is something to plan for as early as possible!

The scary thing about the Baby Boomer Generation is that no nearly enough of them are actually prepared for retirement, and that can be one of the scariest things imaginable.  It’s scary because there are still plenty of costs after retirement, but you no longer have a steady flow of income from the safety of a job.  Going back to the stageoflife.com findings, 40% of U.S. workers plan on working until death; some out of “want”, but some out of “necessity”.

As Americans, we tend to spend more time working than other countries.  According to 20somethingfinance.com, we work too much!  Many factors play into such statistics, such as only 20% of mothers worked in 1960 compared to 70% today.  Additionally, consider that at least 134 countries have laws setting the maximum length of a work week, but the U.S. does not.  In the U.S., 85.8% of males and 66.5% of females work more than 40 hours per week.  Additionally, accordingly the ILO, Americas work 137 more hours per year than Japanese workers, 260 more hours per year than British workers, and 499 more house per year than French workers.  One can argue, this is part of the reason Americans have more opportunity when it comes to retirement, but only if that opportunity is taken advantage of.

 

In Your 60’s

For instance, if you’re in your 60’s, odds are you’re seriously thinking about your retirement, and may only be a few years, months, or even days away.  But have you considered all of what you will need during retirement?  Many consider the “wants” of retirement, such as travel and leisurely hobbies, but very few consider the actual needs.  We’re talking about needs such as medical expenses, long-term care, funeral expenses, and everyday costs of living.  If you’re in your 60’s and haven’t yet considered these numbers, it’s imperative to sit down with a financial advisor, and review what you currently have, and where you currently stand.

 

In Your 50’s

If you’re in your 50’s, you should also be sitting down with a financial advisor to review what the next decade will bring, and where you currently stand.  Depending on where you stand, your investment portfolio may need to be tweaked, and may need to either increase or decrease risk.  In your 50’s, you are likely having children move out of your home, which means serious thought should be given to downsizing your home.  The fact is, one of the easiest ways to reduce cost and generate revenue quickly is by downsizing your home, taking the profits from the sale of your home, and purchasing a smaller home while paying off the home in full.  Not having a mortgage reduces costs drastically and instantaneously.  Another cost savings could be reducing the number of cars you have.

 

In Your 40’s

In your 40’s, you still actually have quite a bit of time for retirement preparation, even if you haven’t done anything yet.  The most ideal thing to do in your 40’s would be to create a CD Ladder, but, according to bankrate.com, the best CD rate right now is only 3%.   It’s ideal if you can participate in CD’s when the interest rate is 5% or higher.  For an example on a properly done CD Ladder, take a look below:

 

Year      Deposit Amt.      Interest Rate.     Term.             Notes

2018            $5000                        5%                      5 years             standard deposit

2019            $5000                        5%                      5 years             standard deposit

2020            $5000                        5%                      5 years            standard deposit

2021            $5000                        5%                      5 years             standard deposit

2022            $5000                        5%                      5 years            standard deposit

2023            $5000 + $6381        5%                      5 years            standard + interest from 2018 profits

2024            $5000 + $6381        5%                      5 years            standard + interest from 2019 profits

2025            $5000 + $6381        5%                      5 years            standard + interest from 2020 profits

 

Based on the chart above, you see that with a 5-year CD at a 5% interest rate, you earn $1,381 in profits after the term of that CD has expired.  With a properly run CD Ladder, you consistently contribute $5000 into the CD Ladder per year, and when the term of the CD expires, you are able to deposit your standard $5000 investment, and then add in the expired $5000 investment as well as the interest earned.  By doing so, you are continuously compounding your money, and by retirement, are able to accumulate a nice nest egg.  A CD Ladder is best started as early as possible, but again, interest rates right now aren’t even 5%.  That’s when you need to either run calculations yourself on whether bond and/or dividend investing would outperform a CD Ladder, or have your financial advisor run the calculations for you, and put you into the most effective solution for you and your family.  No matter what you do in your 40’s, it’s most important to do something!  Look at your monthly revenues, look at your monthly expenses, and figure out how to maximize your ability to save as much as you can.  You should also carefully consider what to do with your 401k.  For instance, some people invest in 401k’s through their employer, but don’t even consider what they are investing in.  Always take the time to review what you are investing in!  There is ultimately no excuse for not knowing what you have, and what you are contributing to.  Ultimately, you go off to work each day and earn money; what most people don’t realize is that investing, including investing in a 401k, is sending your money off to work so it an earn more money!  It’s the easiest way to earn money!  If you’re in your 40’s, you should also either have a Roth IRA, or start one.  Again, you have a lot of time before retirement, and that means there is plenty of time to allow your money to earn more for you!

 

In Your 30’s

In your 30’s, you are able to take investment risks that older people simply can’t afford to take.  That’s because you have more time.  Beyond giving the proper attention to a 401k, you should either have a Roth IRA, or be starting one, and you should be saving anything you can.  Though you may not be able to save as much as a person in their 40’s, 50’s, and 60’s, a penny earned is a penny more than you had previously.  It’s important to capitalize on that, and allow your money to earn more money for you.  It’s also highly recommended to sit down with a financial advisor so you can explain your goals; goals for now, goals for 10 years from now, and even goals for retirement.  Though your goals may change, a good financial advisor can put you on a path that allows you to live comfortably in your golden years.  There are so many investment opportunities and options for a person in their 30’s, it would be a complete loss not to begin to take advantage of them.  While many people find themselves getting married, and having kids in their 30’s, people begin to feel the pressure of responsibilities add up, and need to consider their future, their spouse’s future, and the financial future of their children.

 

In Your 20’s

In your 20’s, life is still more fun than finances, but believe it or not, this is where multi-millionaires are separated from people whom just live comfortably or struggle during retirement.  This is where your biggest investment risks can take place, thanks to the amount of time you have.  Considering that while some will get married in their 20’s, most don’t yet have children until either the latter portion of the 20’s or in their 30’s.  In fact, more and more people are starting families later, and focusing more on getting themselves situated with jobs first.  Additionally, when people wait to get married, divorce rates go down.  Thinking financially, divorce is expensive.  If you can avoid going through a divorce, do yourself a favor and avoid it.  In your 20’s, save what you can.  It may not be much, but every little bit helps.  Take risks and learn from them.  Life is about making mistakes and not repeating them.  You’re far better off taking investment risks in your 20’s rather than your 50’s or 60’s.  Investing is still gambling, but it can be truly educated gambling if done right.  In your 20’s, you can be starting a Roth IRA (if you haven’t done so already).  Though few begin IRA’s prior to their 20’s, you are able to do so as soon as you are working, which includes part-time working, such as a summer job!  The earlier you can begin a Roth IRA, the better!

 

In Your Teens

In your teenage years, life is about fun, and it should be.  But that doesn’t mean you can’t begin learning about finances.  For instance, if you work a summer job or any job for that matter, you should start a Roth IRA and contribute what you can.  Don’t worry about giving the maximum contribution to it, just do what you can.  Learn about what you are investing in, learn how to look at investments, learn how to become a market expert.  What really pains me is that schools don’t teach finances.  They teach deadlines, they teach conformity, they teach fear, they teach math, reading, science and history, but they don’t teach you how to write a check, how to pay a bill, and how to invest.  How schools can be so off-kilter is well beyond my acumen, but I could write for days if I told you stories of how often I got sent to the principal’s office for questioning teachers, and trying to show them how learning about something in school wouldn’t benefit us in the slightest, but learning about investing would.  It shocked me even more because I attended school in the suburbs of Chicago, where educational competition is fierce.  But still, they never taught investing or about real life.  When you’re in your teens, you need to teach yourself.  It stinks to have to take on that kind of responsibility yourself but I promise you, if you take the time to learn investing and normal life functions, you will be well above your peers.  An easy learning tool is what investopedia.com offers on their page.

 

Bottom Line

The bottom line to all of this is that your money can create additional money.  It’s important to invest, and maximize your abilities as you grow older, no matter your current age.

 

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