Retirement Planning at a Young Age

Today we are excited to have Nate, Big Sis' husband, on our blog to share with you a little bit about retirement and why it is important to start it at an early age vs. older. Nate is one of the financially smartest people that I know and I am so glad he is preparing us for a better future. If you have any questions after this about retirement, feel free to either comment or message us and he will get back with you! 

budget week 4

Inevitably as humans we tend to look back at a time, event, or sequence of happenings and play the would'a should'a, could'a game with ourselves and those around us. While doing that we usually realize that we made a choice or followed a path against our better judgment because it was easier or enjoyable at the time. Finances, like health or relationships, are set on a path over such a period of time that the closer to the end or further down the road the harder it is to change the direction of the path being traveled. Stay with me while I explain my position on preparing for retirement early.

Most people don't plan on working for their entire lives. The American Dream of retirement is an easy schedule filled with leisure activities, and time with family and grandchildren. What kind of resources would a person need to retire at 55, 60, or 65 and never work again while enjoying the lifestyle they envision? Some people actually think social security will be adequate to sustain their lifestyle. The truth is SS is a little more than you need to keep from starving for someone retiring from the middle class. Using the SS retirement calculator on the SSA website using my past 13 years of payments and assuming I pay on a yearly $50K income ($40K is American avg)for the next 37 years(67 years old) I will bring home $1,791. a month. (heres the copy and paste for the SSA website)

If you start your benefits:
And you earn an average of:
Your benefit will be about:
At full retirement (age 67)
$50,000 a year (from now until full retirement)
$1,791 a month
At age 70
$50,000 a year (from now until age 70)
$2,221 a month
At age 62
$50,000 a year (from now until age 62)
$1,230 a month

Also consider these alarming statistics:

American Family Financial Statistics Data
Average American family savings account balance $3,800
Percent of working Americans who are not saving for retirement 40 %
Percent of American families who have no savings at all 25 %
Average amount saved for retirement $35,000
Average American household debt $117,951
Average American family home value $160,000
Average amount owed on home mortgage $95,000
Average American household annual income $43,000
Average credit card debt $2,200
Percent of American workers who postponed their retirement age this year 24 %
Percent surveyed who are very confident about having enough money for retirement 18 %
Percent of American adults who do not have a bank account 7.7 %
Percent of American adults who have an emergency fund to fall back on 38 %
Found HERE

After 50 years of paying in thats all I would receive? It might be enough assuming I own my home, my car is paid for, I don't want to travel, and I have no health issues. Im starting to get tired of working now and there is no way I will make it another 37 years. Lets look at another option.

The Naturally Sisters team has dedicated this series to finding/showing ways to become financially wise. So hopefully you have and will continue to "tune in" to learn and implement new ways to save money and with disciplined wisdom funnel it into your retirement account. A dollar invested now returns to you with an exponential earning 30 years from now.I've been engaged in many discussions where a friend will tell me $5K a year/$400 a month is "too much" and I find it ironic these same friends won't think twice about going out for a dinner with a price tag of $100. Or a former boss of mine(age 37 Zero retirement) told me $100-200 a month was the max he could afford but he was paying $440 a month on a brand new Acura sedan. For a middle class American the "get it now" mentality has got to go if they want a life of leisure after retirement. Im not saying live in rags, in a broke down trailer park, and starve yourself. My recommendation for "most people" is to live within your means so that you can contribute 10% of your annual income to retirement.Individual retirement accounts! These along with savings accounts are at an all time low. Several generations of American youth have neglected/put off retirement saving according to recent polls due to lack of income or in cases I've seen among my peers the "live in the now" mentality.

What kind of difference would a retirement account make anyway? Using the Bloomberg.com IRA calculator lets crunch some numbers. A 25 year old making annual contributions of $5K and gaining 10% performance annually will retire at 65 with $2,229,962. 10% is used because the market averages for any 25 year stretch have been between 9%-10%. Picture the same scenario but the worker waits until age 30 to make contributions. The account balance on R-day is $1,355,121. or over $870K less due to a five year late head start. You could play with the numbers all day changing investment amounts, retirement ages, or rates of return but one thing always remains obvious and that is "EARLIER IS BETTER".

-Nate

(Big Sis' Husband)

See other posts from our BUDGET SERIES: 

Retirement Planning at a Young Age

Living Frugally Part II

Ways to Live Frugally

What is a Budget