Sprint toward retirement savings: Part 1
By Gary Silverman, CFP®
We’ve talked about saving for retirement before (probably 3x a year in some context). Often I’ll talk about the need to save 10, 15, 20% or more of your income to get you in the ballpark of what you’ll need. The different amounts depend on just how long you wait before starting (or restarting) your savings plan as well as the trajectory of your income through life.
While highly recommended, beginning your savings plan with your first job and continuing until you’re retired is rarely followed. Heck, I didn’t follow it. For me, starting a business had me dumping money out of my retirement bucket instead of filling it. Others may have done the same thing. Still others may have spent their early years traveling the world, spending their free time and money doing volunteer work. For some, they may have started well, but divorce, widowhood, or extended unemployment “reset” their finances to no better (or even worse) than when they graduated.
For most of you the “problem” is those rascals called “kids.”
Yep, as much of a blessing that they are, as complete as they make you feel, and as worthwhile as the journey with them is, the fact is that kids are a serious drain on one’s financial resources. Only in rare circumstances do you get more out of the investment monetarily than you put into it. (But remember, money isn’t everything!)
So here’s what usually happens: You get educated, get a job, think about saving for retirement (but figure you’ll die before you get that old), spend the money on other stuff, have kids, get a house, go through cars and appliances, find out that college costs a lot of money, realize that weddings cost even more money, and then, maybe, you find yourself in a position to start seriously saving for retirement.
Along the way you’ve probably built up some 401(k) investments, maybe have an IRA or two, perhaps a decent savings account at the bank, and have worked off most of your debts except for the house and a car. Altogether you might have $25,000, $100,000, or a quarter million saved up. Whatever it is, you may realize that’s not enough to keep you comfortable in retirement.
This is normal.
This is a pivotal time. Here’s an idea: Take all the money you were using to raise, educate, and marry off the kids and send it toward retirement savings. On top of that, once the home is paid off (you didn’t refinance for 30 more years did you?), that money goes into retirement, too.
That is a great plan. If you’ve got about 15 or more years until that magical retirement time begins, saving at a 30% rate will work in many, if not most, people’s situations to get you in decent financial shape even if nothing has been saved up to now.
Big plans however, don’t always become reality. We’ll continue to look at the issue next week.
This article was published in the Wichita Falls Times Record News on August 7, 2016.