Planning for the future: Retiring well-off is not impossible

Today's workers must recognize their financial future is now their personal responsibility. This is clearly a shift from many of those who are already retired and in their 70's or older. For these generations, most worked decades with their employer; and when they retired, many received pensions in addition to their Social Security benefits. An additional change from those retiring in the 1970's or earlier is the length of their retirement. If you do not understand these major shifts, the possibility of retiring well-off may be beyond your reach.

I have said it before, the mantra for those facing retirement in a few years to a few decades should be "Be Responsible". While there have been studies indicating many, primarily those in the middle and lower income groups, believe they cannot achieve an affluent retirement, it is possible when certain principles are applied consistently.

Retirement is the ultimate goal for most workers and generally is not something that sneaks up on anyone. Having decades to prepare should make achieving the desired retirement a given, rather than a question.

First, those seeking to enjoy an affluent retirement must know how to calculate their own net worth and take steps to track its value. In this case, net worth is the total of all of the assets (cars, home, personal belongings, investments) a person owns less what is owed. Today, with the abundance of credit, this number can be negative for some. Meaning, you owe more to others than what you own. When this is the case, retirement is impossible, since your current income is all that is keeping your lifestyle afloat. Without it, most likely the only retirement benefit received will be Social Security, and today "security" is no longer part of this benefit.

Secondly, everyone must recognize what type of assets they should accumulate in order to provide a successful retirement. Owning more toys, such as cars, guns, boats, clothes, and homes, will not provide a successful retirement. In fact, owning more of these assets will require significantly more investment assets to be accumulated to sustain all of these personal assets. Assets can be grouped into two categories, personal or consumables and investment or income-producing. The greater the value of the investment assets, the more personal assets they will support.

Once both of these principles are understood, then a plan can be developed and started. Starting and being consistent is more important than the amount being saved. In many cases, depending upon when a plan is started has a major impact on the accumulated value. To illustrate, if a 30 year old saves $200 per month and earns 8%, at age 65 they will accumulate $458,776. Starting at age 50, you must save $1,325.80 per month to achieve the same value. This shows the impact of "time value of money".

Another example of this impact can be shown with a better than average performance year and its impact on a portfolio value. If a 15% up year occurs and you have saved $5,000 thus far, the growth of $750 is outstanding, but few get excited over the result. $750 is just not that much money today. But, if your investments have already reached $300,000 over the years and you achieve the same 15% growth in a year, the increase of $45,000 is exciting. And for most, this increase is noteworthy even though it is the same percentage increase as the $5,000 investment received. This is why mountain charts shown in most mutual funds' promotional material look so impressive and have such steep increases in later years. Even a 10% return on a $300,000 portfolio appears more exciting than a $750 increase on the $5,000.

What if you do not have 20 years or more before retirement, what can you do? Determine your net worth and then track its value taking steps so the growth is positive. Accumulating income producing assets will help improve the results. Then, start saving through your employer's retirement plan or create a personal retirement account.

Retiring well-off is not impossible. But, it does require the discipline of taking responsibility and starting on the road today and not tomorrow, as tomorrow will all too soon become your retirement years. Contact us at Quality Financial Concepts or other CFP firms to obtain the needed assistance to obtain the retirement of your dreams.

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