King~s Guide To Financial Freedom
Sunday, July 03, 2005
Saving For Retirement
I'm writing about what type of savings program is required in order to provide for an adequate retirement.
Here are schedules of amounts to be saved monthly with interest compounded in order to accumulate $1 million by age 65. Note that taxes are not considered, so the interest would have to be accumulated in a tax-deferred account.
- Interest rate 6% ;7% ;8%
- Starting age 25 $ 502.13 ; $ 380.98 ; $ 286.45
- Starting age 35 $995.51 ; $ 819.69 ; $670.98
- Starting age 45 $2,164.31 ; $1,919.65 ; $1,697.73
- Starting age 55 $6,102.05 ; $5,777.52 ; $5,466.10
- Monthly annuity $7,164.22 ; $7,753.00 ; $8,364.39
A few thoughts come to mind when reviewing this information.
- Starting a savings program at an early age makes a dramatic difference. It can also be very difficult to save at an early age because of the financial requirements to establish oneself, including buying a home, a car, etc. The old maxim of "pay yourself first" seems to hold true.
- The interest rate assumption is important. Rates of return aren't usually constant. These rates may be high or low depending on the investments that we're considering. They are certainly higher than banks are paying for regular savings accounts. Higher rates of return usually indicate the investments carry a higher risk of loss.
- Most so-called middle-aged people should be planning to accumulate at least $1 million by age 65. With inflation (increases in the cost of living), they will probably need that amount of assets in order to maintain a decent standard of living.
- Contemplating this information could lead to despair. "It looks impossible, so why even bother?" Or, "The only way I can make it is to hit the lottery!" Most of us need to seek other ways to build value for our net worth. Some ways include building a business, increasing the value of real estate investments, or finding a growing employer that offers incentive stock options.
- Probably most of us should plan on working at least part time during our retirement years. We need to take care of our health now in order to be in condition to do so. We also need to maintain current skills in order to be employable.
Share this information with your children and grandchildren. They need to know how important it is to set and achieve financial goals. Most of us believe that we can't rely on the Social Security system for the long term. We must provide for our own financial future.
posted by queen # 11:06 PM 
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