I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.
Conquering Your Financial Empire
The news media is fascinating to me. If you search “Millennial’s saving rate” on Google you receive back a myriad of results running the spectrum from awesome to financial apocalypse. TIME has a report about how Millennials are outpacing everyone but Baby Boomer’s when it comes to their savings rate, Marketwatch states that half of Millennials have less than $1,000 in savings, Wall Street Journal notes we face a savings deficit in our future, and CNBC notes that we’re becoming money-saving champs. Fascinating! The answer, as it tends to be, is probably closer to the middle. Some Millennials are doing well and some are not. Anecdotally, I know I have friends who are savvy retirement savers, some who save well but tend to spend it on short-term purchases, and then others who live paycheck to paycheck because they purposefully spend every dime.
It seems that when people think about retirement, it’s only as a forlorn thought. A mysterious place where one percenters frolic and play among grassy hills and flowery blooms; not a place for your everyday working guy and gal. No, your everyday guy and gal see their “retirement” as a place where they have a small chunk of money and monthly payments from Social Security, and every day they wake up and hope they go another day without getting sick because that would lead to financial ruin. What a dreadful way to live life.
Personally, I would like all of my readers to be progressive thinkers when it comes to finances. Don’t think about setting up a nest egg for retirement; Think about how to increase your net worth in a way that secures financial independence for days to come! However, it’s not lost on me that financial independence and security is a very arbitrary sentiment. To me, thinking about net worth rather than retirement is just a different philosophical outlook on how to get to the same goal. It doesn’t allow one to rest on their laurels or get lazy. I know I don’t have an end goal, I just want to amass a sum of money in an ethical way that benefits me and, when my clock rings midnight, my survivors as well.
But for those of you who find it easier to visualize a concrete number and use it as a goal, I fully understand. So let’s visualize. Think about a number that you could live comfortably on in retirement. Be sure to keep your work ethic and education/experience in mind. If you’re just starting your career, it’s probably safe to add some money, within reason, to what you currently make. For instance, if you make $40,000 and you’ve only been working for two or three years, it’s probably safe to bump that to $50,000 if that’s what you think would be comfortable for you and realistically, you could start making that within five years. Do you have your number? Now multiply that number by fifteen. That, I think, should be your retirement goal. If you’re not making a six figure income, that “goal” could seem rather lofty and unattainable. Fret not, friends! Remember, we all get Social Security and some of you will have other monthly payments coming in (like rental properties or maybe a sweet union pension). You can take that expected monthly income, multiply it by twelve to get a yearly distribution and then multiply it by how many years you expect to receive it. For instance, let’s say I expect to get $1,000 a month from Social Security. I plan to start drawing at 65, and expect it to last until I croak at 90. I could subtract $300,000 off my retirement number (1,000*12*25=300,000).
So why fifteen? Fifteen is the multiple I think it takes for someone to retire comfortably. You could take out equal payments from your savings for fifteen years and still live, according to your standards, comfortably. Considering the average age of death for males is 78.1 and females is 81, fifteen years is a safe bet. You also have to remember, even though you’re drawing down your account it isn’t in a bubble. It’s still being invested and replenishing losses. Suppose you withdraw 4% from your account each year, but are invested completely in Treasury Bonds at a 2% return, you’re effectively only drawing down 2% of your retirement a year. Coupled with the fact that the elderly will generally see their expenditures go down over time, that multiple of fifteen could quite possibly last you twenty or more.
I’ve talked about the various retirement plans before, but didn’t really touch on how to open them. Luckily, companies want your money so they make it incredibly easy to open new retirement accounts. All you need to do is go down to your local bank and request to speak to one of their retirement advisors. Most banks employ a travelling advisor who only stops by your particular branch once or twice a week, so you’ll likely need to make an appointment. Should you choose to be a little more free-spirited, you can open an account online through one of the many, brokerage firms: Fidelity, Vanguard, T. Rowe Price, the list goes on. If you’re not a financial whiz-kid I highly encourage you to speak with a licensed professional rather than do it yourself. Either way though, you’ll fill out the usual host of paperwork – personal information, bank information, general disclosures and liability forms, and a worksheet where you select whether you want a Roth IRA or Traditional. Many brokerages and banks have required minimums for you to start, so be aware of that. Credit Unions tend to have a lower minimum. That’s really all there is to opening a new account. From there you’ll select the various investments that fit your risk profile and you should also sign up for automatic contributions either from payroll deduction if available or a monthly bank transfer. Just like that, you’re on your way to a comfortable retirement.
So readers, do you agree with my multiple of fifteen rule or do you think it’s higher or lower — alternatively, what’s your number? How do you view retirement: are you like me and view it as a personal goal to get as high of a net worth as possible or is it easier for you to save knowing you have a concrete minimum to shoot for? Be sure to discuss in the comment section below!
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