Ready To Build Your Own Retirement Plan?

retirement planning


Putting together your own retirement plan really IS a possibility for you. Don’t believe me? Look at these retirement myths and the breakdown of why they don’t have to be true for you. Think you’re too old to start saving? Think you don’t make enough to save for retirement? Think again!

This retirement expert has helped countless people plan for the life they want after quitting the rat race, and his wisdom is more timely now than ever.

Retirement Plan

Myth 1. I’m too old to save for retirement.

I frequently hired employees who were older than I was—often in their forties and fifties—with no retirement-savings plan. Fear had long ago set in, and they figured it was too late. They were stuck; they had missed their opportunity. Not true. While it’s true that you’re better off starting at age 25 than 50, it is also true you’ll be better off starting at age 50 than, say, 70. Then again, 70 is a better start than 90, isn’t it? The past is the past. We must stop peering at the rearview and instead look ahead toward the horizon. As long as you’re still breathing, it’s never too late to start. It’s never too early, either.

Myth 2. I’m too young to save for retirement.

Too young? Are you insane? If you’re younger than 30, you have it made! Young people, no matter your tax bracket, have a significant opportunity to become truly wealthy thanks to the power of compound interest. Someone who invests $25,000 by age 25, with a 12% rate of return, will have more than $2 million by age 65—even if he or she doesn’t add another dollar after age 25. Conversely, if that same person waits until age 30, he or she will have to contribute more than three times as much to achieve the same outcome. The lesson? Compound interest is the best way to grow your money over the long haul—so start while you’re young.

Myth 3. I don’t make enough money to save for retirement.

Actually, there is no reason you shouldn’t retire a millionaire. That’s right: virtually everyone, even minimum-wage earners, has the opportunity to be a millionaire when they retire. It sounds too good to be true, but the math proves otherwise: a 25-year-old who sets aside only $23 per week will retire with more than a million dollars if the money is invested properly (12% rate of return). Okay, so maybe you’re not 25 anymore—me, either! That’s all right—us older folks simply need to adjust accordingly. Betterment has a wonderfully intuitive investment-and-retirement calculator to help you understand exactly how much money you need to save based on your age and financial objectives.

Myth 4. Inflation will hurt my retirement nest egg.

This is the only myth that is partially true; however, its truth is irrelevant. While it is true $100 dollars ten years from now will probably possess less buying power than $100 today, the flip side of that coin is also true, and considerably more important: your $100 ten years from now will be worth infinitely more than your friend’s $0 invested. In fact, solid investments are the only way to outpace inflation. It is better to invest your $100 than keep it in a bank or under your mattress.

Myth 5. I’d rather spend my money on something else.

When intentions are good, this excuse occasionally sounds like the most compelling reason to avoid saving for the future. True, we sometimes cling selfishly to money, using our income to purchase superfluous trinkets of ostensible success (new cars, shiny gadgets, accoutrements of consumerism), but frequently we want to use our money to contribute beyond ourselves (charities, nonprofits, and loved-ones in need). Contributing to others is certainly admirable, and I believe giving is living, so I want you contribute generously, but I’ve found the best way to help others is to help yourself first—the best way to give generously is to have more to give. Investing in yourself first helps you flex your giving muscle. There’s a reason airlines tell you to “secure your own oxygen mask before helping others”: if it’s easier to breathe, it’s easier to help people in need.
– via The Minimalists

Pay Yourself First

Now that we have some of the lies out of the way, how about some truth? You can build your own retirement plan, and today is the day to start! It’s not too late to get your finances in order. Plus, there are several different ways you can go about creating your ultimate retirement plan.

Below is a vital first step that many people never think about – where do you spend your money first?

The first habit you need to incorporate in your weekly budget is to pay yourself first. Then be sure you take advantage of the free money from your employer if your company offers a qualified retirement plan. If you’re self-employed, you have different options to make saving for retirement easier. If you’re employed with no employee retirement savings options, then you can use a traditional IRA, but may want to consider a Roth. If you change jobs, be sure to take control of your savings by rolling them into an IRA. Finally, start developing a vision of where you want to go and how you want to live in the future.

Pay Yourself First

Many people think of retirement savings as the money they put away if there is any cash left at the end of the month. Generally when you try to save that way, you tend to put away very little or nothing each month.

“Paying yourself first means saving before you do anything else,” says David Blaylock, CFP, senior financial planner at LearnVest Planning Services. “Try and set aside a certain portion of your income the day you get paid before you spend any discretionary money. Most people wait and only save what’s left over—that’s paying yourself last.”

Try putting aside just $10 a week (maybe bring two lunches rather than eat out twice a week or skip a few trips to your favorite coffee place). That may not sound like much but, thanks to monthly compounding, it could grow surprisingly large.

Let’s say you save $40 per month and invest that money at 4.65%, which is what the Vanguard Total Bond Market Index Fund earned over 10 years. Using an online savings calculator, an initial amount of $40, plus $40 per month for 30 years adds up to $31,550. Jack up the interest rate to 8.79%, the average yield of the Vanguard Total Stock Market Index Fund over 10 years, and the number rises to more than $70,000.

You can increase your savings as your income increases and your nest egg can be a lot larger. Determine the investment mix that’s best for you and use a savings calculator to see how fast your money can grow based on the amount you can pay yourself first.
– via Investopedia

Have you decided to build your own retirement plan? Are you working with a professional, or setting your own plans into action?

Leave a Comment