Want to have a great retirement -- one where you can "worry about" things like how to give back to society, where to go out with friends and family, how often you want to travel, and the like? That's what I'm working towards. And you know what? It turns out that getting there is fairly simple -- you just need to know the few financial moves you need to make now in order for that to happen.
Good thing for all of us that I found this article from Yahoo. It does just what we need -- it lists the keys to a great and prosperous retirement. Their thoughts:
- Don't Count Too Much on the Government or Your Employer.
- Spend Less. It's not as hard as you imagine.
- Invest in (Save for) Your Future.
- Pay Off Your Credit Cards.
- Pay Down Your Mortgage.
- Be Clear About Your Potential for Inheritance.
- Invest for Growth.
- Don't Forget Insurance.
Oh yeah, this guy's singing my song!!!
Here are my thoughts on each of these:
- Government -- I'm counting on ZERO from the government when it comes to my retirement. Anything I get will be a windfall to me.
- Spend less -- It's the key to a prosperous life and retirement. In fact, it's the one way that anyone can become wealthy. Income, while important, doesn't matter as much because even if you make $165,000 a year (or more!), if you spend more than that, you're going backwards.
- Investing -- Save and invest for years and years -- then watch the power of time and compounding turn your savings into a fortune.
- Credit cards -- It's a net worth death-blow to carry regular balances on your credit cards. Get out of credit card debt now.
- Mortgage -- Yep. This agrees with my formula for buying a house.
- Inheritance -- I'm counting on nothing here too. In fact, it's likely that my parents will work through their savings (which aren't much) rather quickly and will need financial support from me. (My wife's parents are deceased.)
- Growth investing -- I go with index funds. They've done well for me so far.
- Insurance -- Health-care insurance and medical treatment will become bigger and bigger issues as we all approach retirement.
The Yahoo piece ends with a bit of advice that I just had to include:
There's nothing magical about nurturing your nest egg. It takes common sense and resolve. The magic is in the results.
Hey, I didn't get your name, but I love your blog, it is a great information resource, and I will be featuring a link o it on my blog. I also may want to take a few brief quotes from your pages, with trackbacks of course. contact me!
Posted by: Gabe J. | June 08, 2006 at 12:50 PM
Gabe --
You can email me if you like. See this link for details:
http://www.freemoneyfinance.com/2005/04/free_money_fina_4.html
Posted by: FMF | June 08, 2006 at 01:45 PM
Compound interest is a very powerful thing. Consider a hypothetical situation. You are 40 years old. Your parents are now retired and your own future retirement is seeming very real all of a sudden. You manage to put $5,000 into your 401(k) this year and it is in a bond fund earning 5%. When you hit 60, that piece of your nest egg will have grown to about $13,250.
Now, here's the thought experiment. If you were able to double your contribution to $10,000, you'd double the end result to $26,500. But here's the power of compounding. To double your results, you can also invest in something returning 8.7%, not double to hypothetical 5% bond fund. Another way to double your retirement money, would be to start 14 years earlier, at 26. That's at the meager 5% return. The doubling time gets better when you are considering average long term returns in the stock market.
My point here is that starting early, and investing in something with a good return are more important than putting lots of money into your retirement account.
Posted by: Dale G. | June 09, 2006 at 02:21 PM