Planning for Your Retirement The Smart Way

retirementAs millions of aging baby boomers start contemplating how they are going to survive when they’re no longer working, retirement planning has hit an all time high. Whether you’re just starting out in the workforce, or you’re staring 62 in the face and wondering where the money is going to come from, it is never too late to start planning for your retirement.

There are many ways that you can start putting money aside to help you in your later years. First, you’re going to need to figure out how much money you need every single year to survive. Take 10% of that and add it on for emergencies. You’ll need to extrapolate a bit when it comes to how long you plan to live, but most people shoot for at least 30 years of retirement money. So, take that amount per year and multiply it by 30. This is the amount that you’re going to have to put away.

Pretty frightening isn’t it? Now, take that figure and divide it by how many years you plan to continue working. This will give you an idea of how much money you need to start putting aside every year. Subtract any savings or 401K plans that you have and you’ll have the bottom line. As an example, to illustrate this process, let’s say that you need at least $45k a year to pay all of your bills and live comfortably. You’re currently 35 years old and you plan to work until you are 65. This means you’ve got 30 years to save money.

To be on the safe side, we’re going to put away enough to last 30 years. Even if you don’t live that long, you’ll have plenty put aside for managed care or other health expenses that can crop up. In total, you’re going to need to put aside $1,350,000. Add in that 10% cushion and you’re at just under $1.5 million. Ouch! You’ve got thirty more years to save, so you’re going to have to put aside $50,000 every single year to meet your goal.

(Editor's note added after publication: As pointed out in a comment below, I left out the power of compounding interest... but I also left out taxes and inflation... If you think you could live on 45k a year now you will need to adjust for inflation as well... Personally I think I will have a hard time living on only 45K per year. I don't think I was misleading, but perhaps I was oversimplifying.)

Unless you make an incredible amount of money, chances are you’re not going to be able to put aside this much money. Even the best 401K’s rarely perform that well. So, in order to make sure that a soup kitchen isn’t in your future, you’re going to need to look into some investments and alternative streams of income. If you don’t have a lot of free income as it is, debt leveraging may be in order.

If you’re not familiar with this term, it basically means going into debt in order to take advantage of opportunities that will create new streams of income. When managed wisely, this is a very easy way to put aside more money. The key is finding the best opportunities or stocks and being cautious at first. With proper management, debt leveraging is in an incredibly powerful tool that can be used to secure your future.

Photo Credits: 1

Originally posted 2008-06-04 05:56:00. Republished by Blog Post Promoter

Blog Traffic Exchange Related Posts
  • moneyThe Key to Successful Financial Planning Financial planning at its smallest denominator is essentially what you'd like to have and how you plan to get it. That may be oversimplifying things just a bit, but sometimes when you look at things stripped away of all of their jargon, it's a lot easier to understand it. So,......
  • moneyDebt Consolidation Tips If you're swimming in a sea of debt and trying to figure out how to keep your head above the water, one of the easiest ways is to consolidate. However, the actual process of consolidation can be confusing and it is all too easy to make mistakes that will end......
  • opportunity-knocksHow to Invest Now Without a Dime in the Bank If you've ever had a chance to invest in a great stock but didn't have enough money put aside to take advantage of the opportunity, you know too well the agony of defeat. Most of us are under the impression that it takes money in the bank to start investing.......
  • moneyGetting Out of Debt 103 Debt Elimination Step #3 - Finally, you have to implement what is known as a debt snowball. The third and final step of this process, implementing a debt snowball, is a step that could easily require several years depending on how much debt you are dealing with. Once you have......
  • treeHow to Start Saving More Right Now For many of us, saving is something that we always plan to do, but never quite get around to it. The bottom line is, if you don’t have a savings account and a regular plan for putting money aside, you may regret it in the future, especially as you get......
Blog Traffic Exchange Related Websites
  • blog traffic exchangeWhat I Should Do With My Windfall Regular readers know that I'm a big proponent of credit cards.  I love them.  The credit card companies don't love me though.  They don't make any money off of me.  Last year, I signed up for the Chase Freedom Rewards card because they offer cash back on every purchase you......
  • developing a millionaire mindset When I stated my goal a while back to have $2 million dollars within just a little more than 9 years, I realized that I had to make a few changes in my thinking. I am still working on most of these changes, but I have come up with......
  • lifetime_incomeHow to Make Your Retirement Money Last People are living longer. I hope that applies to baby boomers as well. The problem with having a long life is outliving your money. I think about this a lot. So how can we make sure that our money lasts for our lifetime?  What long life and money strategies are......
  • How Much Do I Need To Retire? The following post is from Todd Tresidder. Todd retired at age 35, publishes the FinancialMentor blog, and lives in Reno, Nevada, with his wife and two children. His ebook, “How Much is Enough to Retire?” reveals the problems behind retirement calculators and explains the solutions he created to plan 60+......
  • blog traffic exchangeDelaying Roth IRA Contributions One Year Could Cost You $74,000 Last year was the first year I have been able to make the maximum contribution to my Roth IRA, thanks in large part to becoming debt free. I was also able to fund a spousal IRA for my wife, who stays home with our kids. Now that it is 2010......
Online Stores If you liked this article, vote for it on del.icio.us and stumbleupon.


Categories:

Financial Security, Money, Personal Finance, Standard of Living, Wealth, retirement



Tags:

, , , , , , , , , , , ,


6 comments ↓
#1 Shannon on 06.04.08 at 2:18 pm

People are simply not saving enough money for retirement these days. If they knew how long they would live they could plan better. But now-a-days people are living longer than expected and not saving extra funds to cover this.

#2 Wealth Building Lessons on 06.05.08 at 9:22 am

I got posted why $1 million in retirement may not be enough.

#3 edman on 06.05.08 at 10:10 am

Saving 50K for 30 years to save 1.5mil is a bit misleading. Thats only if you plan on putting your money into a box under your bed gaining 0% interest. Conservatively, if you can invest in a retirement plan and earn 5-7%, agressively, 8-11% if youre lucky. The compound interest earnings will significantly cut down the amount of money you need to save every year.

Example: http://moneyning.com/calculators/compound-interest-calculator/

Putting in 1000 a month (12K a year) over 30 years earning 8%, will yield 1.49mil at the end of 30 years.

12k is a lot less than 50k, and much more realistic.

Of course, if you had 50k a year for 30 years to invest and earned the same 8%, youd end up with over 6 million dollars.

“The most powerful force in the universe is compound interest”. Albert Einstein

#4 Rich Leverage on 06.05.08 at 8:21 pm

Yes indeed a bit misleading, but I also left out taxes and inflation… I meant to say that I think I would need 1.5 million in today’s dollars, which is a significant amount more than 1.5 million at retirement.

#5 Rich Leverage on 06.05.08 at 8:26 pm

I don’t think I was misleading, but I agree I was oversimplifying the issue.

#6 How to Survive Inflation | Rich Credit Debt Loan on 08.21.08 at 5:03 am

[...] if you don’t have a savings account, now is the time to start putting money aside. It may be a little tough, but you need to have some security and a cushion to fall back on. Even a [...]

Leave a Comment

Email Updates

amount of money bad debt banks Budget cash money credit card credit card debt credit cards credit history creditors credit rating credit report credit score debts economy emergencies emergency fund enough money financial future frugal tips how much money insurance interest rate interest rates investments investors job lenders little bit living paycheck to paycheck loans Money money life multiple streams of income paycheck paycheck to paycheck Personal Finance premise retirement risk saving money savings account stock market Stocks streams of income