Tuesday, January 26, 2016
More Than Ever, It's Up to You
$1,000 that receives a 6% rate of return over 20 years results in $3,290.66 Those calculations are assuming that the interest compounds 4 times per year. The good news is the stretch drive. If you pay off the mortgage early; if you get the kids out of the house on schedule, you can accomplish miracles in the last 10 to 15 years of your working life. These are typically the years when you will be earning maximum income. No mortgage payment adds a $1,000 a month or more in after tax income that can be invested in a Roth IRA that will produce growth and income—tax free—forever! I never quite reached the widely recommended target of 15% pretax income into the 401 (k), but I did hit 14%. Something close to a third of my after tax income went straight into savings during those critical final years of my working life. Ten years of that kind of focus can catapult you into a comfortable retirement. The Baby Boom bought a bait and switch. We were promised a conventional defined benefit pension in our declining years if we gave the best years of our life to our employer. This didn’t happen. By the mid 1990s the handwriting was on the wall. The covenant between worker and company had been broken, but during those boom years, instead of saving for retirement we were taking out second mortgages to finance luxury vacations and new SUVs. Too many of my generation aren’t going to finish the stretch drive until they are in their seventies. This logjam will limit employment opportunities for the generations that are following us. Not everyone who is planning to work until he is 70 is going to be healthy enough to finish the race. Those that do will have lost those early retirement years when we would be better able to enjoy a little travel and extra time with the grandchildren. More than ever, it is up to you. Don’t count on the Government or your employer to lead you into the Promised Land. Instead take responsibility for your own life. Bite the bullet. Make those hard decisions. Stay out of debt. Consistently live on less than your income. Invest that surplus in an age appropriate mix of stocks and bonds or even income producing real estate, if that is your thing. It is quite reasonable for a young couple just starting out on the road of life to expect that they will retire with at least $1,000,000 in investments. Add another $300,000 or so in home equity and Social Security. Life can be good. Don’t let anybody tell you that you can’t do it.