Compound interest fertilizes your nest egg
One of the best things that can happen with money is compounding interest.
Imagine you have $1,000 and earn 10 percent. That $1,000 is now worth $1,100. The next year, you have another good year and make 10 percent again. That $1,100 is now worth $1,210. Even though you made the same percentage, you earned an extra $10.
This makes time one of the most valuable commodities when investing. It is never too late to start, but each year that you wait, you are losing time to compound your earnings. Whether you are 25 or 65, you can start. It always will benefit you in getting closer toward achieving your specific goal(s).
I have people ask me all the time: “What will I need to retire?” There isn’t a blanket answer. Everyone’s income needs are different. Don’t work with someone who simply plugs you into a certain portfolio because you are a certain age. A financial professional should determine the portfolio based upon your specific needs, goals and objectives. The same goes for your income needs. On average, an individual spends about 85 percent of his or her working income during retirement. Many times, people will spend the same or more the first five years of retirement because they are traveling or doing things during the day that they previously didn’t do because they were working.
You want to break these numbers down into what you need monthly. For example, if you determine that you need $2 million during your lifetime that would daunting, but seeing you need a certain amount per month makes it easier to digest.
Many people forget that retirement is like another career. Hopefully, you have another 20-to-30 years after retirement. Also, the year you hit retirement, you hopefully won’t use every penny of your savings. Therefore, plan your portfolio for an entire career of retirement. With interest rates as low as they are, can you live off mainly principal? If not, and you expect to live 20-to-30 years or more, you will need to invest some of your savings in stocks to help protect against inflation.
Do you have a pension? Having a pension that pays you $40,000 per year, assuming no cost of living adjustment (COLA), is equivalent to saving at least $1 million.
Your retirement savings is just a pile of money until you put it to work. It is not only about how big your pile is, but how much income it can generate for the rest of your life. This is where a complete financial strategy becomes extremely beneficial. The power is in having a real strategy and not just guessing. A lot of people are scared to find out the exact answers when it comes to money, or they just assume many things. Make sure you take the time to invest in yourself and find out what you really need and a way to get there. Every person is different.
This article was written Adam B. Carlat, a financial advisor and Chartered Retirement Planning Counselor® with One2One Wealth Strategies in Glendale, Arizona. Questions? Call (623) 850-0016 or email Adam@121ws.com.
The opinions expressed in this article are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your tax, legal and/or financial services professional regarding your individual situation. The views expressed in this letter are those of the author and may not necessarily reflect those by PlanMember Securities Corporation.
The above examples in this article are for illustrative purposes only and each individual situation will be different.
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