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Are you saving for retirement? Here’s what happens if you don’t…..

After having read this article, your claim to ignorance will no longer be relevant. Are you saving for retirement? If not, what are you waiting for? With pensions almost completely gone, the millennial demographic is on their own. The lack luster benefits of Social Security, increasing life expectancy, and enormous health care costs are three big factors to start thinking about retirement savings right away. This doesn’t even consider any of your personal goals, which you deserve to achieve.

With a higher number of twenty something’s staying at home and a nation with a low financial IQ, I presume there is a lot of dollars sitting in bank accounts. Anyone who knows anything about money will know that equates to loss of purchasing power over time. It’s also flat out leaving money on the table. If you’re scared of investing, you should be more scared to NOT invest. If you don’t know anything about it, start ASAP.

I learned a lot about investing from two books in specific. One was Jim Cramer’s “Sane Investing in an Insane World” and the other being Tony Robbins’s “Money: Master the Game.”

Here’s what can happen if you don’t invest….

Scenario 1:

You save a lot of money and keep it in the bank. Let’s say your disciplined enough to save $10,000 a year for 30 years @ a 1% percent interest rate.

This will amount to approximately $350,000. Not nearly enough to retire on. That won’t even afford you one of those shacks you’d see on “Buying Alaska.” Not even ten years would it last you on a budget of $4K a month.

What if you invested this in the S&P 500? Based on historical return data, you would have earned about $1.8 million, leaving about $1.5 million dollars on the table. A 4K a month budget will last you 37 years, all because of the power of compound interest.

Scenario 2:

You’re working at a company but choose not to enroll in their 401K plan. Saving 10K a year will get you to about $350K in 30 years, as shown above.

Let’s assume you’re making $75,000 and you elect to contribute to your 401K, opting into their 50% company match – up to the 6% company contribution limit. A 3% yearly salary increase will also be assumed.

At the end of 30 years, this would be a little over $1.5 million dollars. The real takeaway is that you would have only invested about 220K after 30 years!

Scenario 3:

You are self-employed and don’t have the option to participate in a 401K. Good news, you’ll have more flexibility in your choices of investment through establishing a SEP IRA (only available for business owners). While 401K’s have a contribution limit of $18K, SEP IRA’s let the employer contribute up to the lesser of $25% of income or $53K. Not only will the employer be able to use this as a tax deductible expense but they also maintain the benefits of tax deferred growth.

With larger limits, your gains will be even bigger! (if your profits will allow)

Scenario 4:

You did nothing but expect Social Security benefits to take care of you. In 2016, maximum SS benefits are $2,639/month. If you believe this program will even be around in 30 years…will you be able to live on that?

Take away…

Don’t leave millions on the table. The perception that you need a vast amount of luck or skill to become a millionaire is far from the truth. Anyone can become a millionaire by budgeting, investing, and reinvesting their profits.

 

(These calculations are done using compound interest calculators that can be found here and here)

Eric Estevez
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