Are Your Personal Financial Choices Diminishing Or Improving Your Retirement Opportunities?
by Jim Taber
Your common, everyday, personal financial choices and/or attitudes impact your retirement opportunities.
Every day we make many financial choices. Some are directly and obviously retirement related...
...but most are not.
The decision either to do or not to do something carries with it easily overlooked implications that can dramatically influence your final retirement outcome.
In the span of your working years the combined consequences of these many personal financial choices plays a huge role in determining whether or not you will be able to retire in the manner that you desire.
In fact, the key to your retirement success or failure may very well hinge on your understanding of how much and why, ordinary, common, daily, and thus perhaps "not so obvious" personal financial choices really matter when it comes to your retirement.
Here are five very common personal financial choices or attitudes that will play a major role in determining your retirement security.
Personal Financial choice #1:
Thinking that you have plenty of time and therefore you'll worry about retirement later.
This sort of attitude and choice to "put off" saving for retirement will dramatically limit the amount of money you will likely be able to accumulate by the time that you reach retirement age.
Say your goal is to save $500,000 for retirement at age 65. The monthly savings required (assuming a 10% growth rate) would be...
Time may be the most under-rated commodity in building financial security.
- $78 per month if you begin saving at age 25
- $219 per month if you begin saving at age 35
- $653 per month if you begin saving at age 45
- $2,421 per month if you begin saving at age 55
Personal Financial choice #2:
Not knowing how much money it will take to fund the retirement you desire.
Think about this...
If you don't even know how much money will be required, then what do you suppose the chances are that you will end up with the right amount?
It is imperative that you know "early on" how much money will be required so you can retire...
...when you want, with the cash flow that you need, and with enough to last your lifetime.
Merely having a 401k, or an IRA, or any other retirement savings account does not assure you a quality retirement. Most people grossly underestimate the amount of money required for them to be able to have the retirement they envision for themselves.Act now and determine your retirement need in total dollars.
Personal Financial choice #3:
If you are like most people...
...you spend money on things that you really don't need.
Instead of managing the money you have, you just spend as things come up.
Suppose that by simply focusing your attention on your daily spending you were able to reduce your cash outlay by just $5 per day. Over the course of a month you would save $150.
Now say you invested that $150 each month for retirement. And say your investment earned an average annual rate of return of 10%...
So the question is... is it worth it?
- In 20 years you would have $108,598.
- In 30 years you would have $311,894.
- And in 40 years you would have $839,191.
Is what you are getting for that $5 each day really worth forsaking future assets of such magnitude?
Personal Financial choice #4:
Overpaying for stuff.
Of all the threats to your financial security (and hence your retirement)...
...none is more dangerous than debt.
Credit is designed, marketed, and processed in a manner that maximizes how much you are going to end up paying.
Credit is also designed, marketed, and processed in a way that minimizes your awareness of how much you are going to end up paying.
Buying things on time is similar to the $5 per day example in the previous paragraph...
...but in reverse! Instead of working for you...
...the power of compound interest now works against you.
Continually paying such a premium over the course of your life will dramatically diminish the number of dollars you will have available to save and invest for retirement.
Personal Financial choice #5:
Saving for retirement blindly.
People often save into their retirement accounts with little or no knowledge about whether they are saving enough and earning enough to actually get the job done.
This is a recipe for disaster.
Failing to understand -- years before retirement -- what will be required in both contribution amount
and return on investment
in order to reach your goal is a common oversight that has dire consequences.
Don't ruin your chances to obtain an adequate retirement balance.
Many people will only invest their money in what they consider to be "safe" investments. Investments with little or no risk. Like bank savings accounts, CD's, money market accounts, etc.
There is absolutely nothing wrong with such a safe approach...
unless it prevents you from being able to grow your retirement balance to the level necessary to meet your retirement income goal.It may seem ironic, but quite often the so called "safe" approach is in fact simply too risky.
The point is... no one should take more risk with their hard earned money than is necessary... but make sure that you know what is necessary.
The difference of a few percentage points may seem minor, but the impact of the rate of return when combined with time is significant.
It may seem reasonable to think that if you could earn a 10% return instead of 5%, your money would double. Not so! The difference is much greater than that over time.
For example, $100 per month earning 5% over 40 years will grow to $153,240 dollars.
However, that same $100 per month earning 10% over 40 years will grow to $637,680 dollars.
In the end it's up to you...
The key difference between having a minimal or a maximal retirement very likely lies in daily financial choices that do not readily appear to have any direct relevance to retirement, but in fact do.
Ask yourself honestly...
Are your personal financial choices diminishing or improving your retirement opportunity?
"Because It Matters"...
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Our goal is to be a guide to help you better understand what is important and how much your financial choices matter.