Retirement Errors

If done properly saving for your retirement can be a process that spans many decades.  I hope that everyone is saving for their retirement now and is not putting off this very important aspect of one’s life.  As I have said before the key to a happy and successful retirement is to save as much as you can and to start as early as you can.  Money that compounds over 30 years will grow to a figure that may alarm some of you.

Let us look as a hypothetical person who is 25 and will retire at age 67 when they reach their full retirement age.  In the first scenario this person will begin saving in an IRA with $5,500 a year for the full 42 years until they retire.  In these calculations we will not take inflation into account just as long as you are fully aware it is a reality and will have an effect on your purchasing power when you retire.  In both these scenarios we will assume a moderate 6.5% return over the life of the IRA.  Now if you were to start investing at age 25 you would have approximately $1,256,000.  Now consider you wait 10 years before you begin saving, you would have approximately $627,000.  Simply by waiting 10 years you cost yourself almost half of your retirement account.  So you can see that by saving early and often you will set yourself up for a better retirement.

Now that you can see the importance of how and when to save there are some things that many people do to themselves that can ruin one’s retirement.  One of the main concerns is that will I take out more than I can afford to by eating my principal balance.  Now one knows how long they will live in their retirement years although I hope everyone has a very long and healthy retirement.  Some of the issues that you need to consider when calculating what amount you can afford to withdrawal are the length of your retirement, how well your investment will grow, and what the inflation rate will be over your lifetime.   While no one knows the answers to these questions you and your planner need to make the best assumptions that you are able to make.  Look at historic averages for returns and inflations as a guide and your own family tree to answer the question to how long you may expect to live.  It is better to be conservative in your estimates such as inflation may be higher than historic levels, returns will be slightly below that of historic averages and you will live longer in your retirement that maybe your family history suggests.  You will make these more conservative assumptions to help ensure you do not run out of money in retirement.

Do not simply look at the figures when calculating what it is you will need in retirement.  In addition to having enough funds to live a fulfilling life monetarily you need to consider a healthy and full life.  I order to do this you must have good family and friends to surround you in addition to your retirement funds.  And it is also important to make sure you are healthy both emotionally as well as physically.  Take the time now to lay the groundwork for having a full set of family and friends that you can surround yourself with in your retirement years because let’s face it who want to sit alone all the time.

And lastly do not fall into the trap of comparing yourself to others or chasing after unrealistic gains.  No matter how much you save there will always be someone who has more money that you.  So save yourself the trouble and be content with what you have and make sure it is enough to cover the expenses you have.  Unless you are Warren Buffett chances are you will worry about your retirement, just do not get worried if someone has more than you.  Their situation will be different from yours and with that in mind please understand the only people who you have to answer to are your own family and no one else.  And when many people are busy doing this when they should not be they are also on the lookout for the next easy way to increase their gains.  Please remember that by the time an actual tip that is based on solid information reaches you the majority of the gains have already happened.  Never chase potential gains with your retirement savings.  Develop an investment plan with a financial planner and stick to it unless there is a credible reason for any deviations.

Make time work for you with the compounding of money.  Use conservative estimates when you are calculating things and above all be realistic.  And finally do not compare your situation to others and never chase golden opportunities.  When you think you need help do not be afraid to seek out the help of qualified financial professionals.

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