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Nov 22, 2014
5:31:53am
Roadmap to Retirement and other ramblings from an old man
Rather than continue reading posts that Savannah sux, that the schedule sux, that BYU sux, that Bronco sux, that Obama sux, that all of you suck and are stupid if you don't agree with me, everything in the world sux, I thought I would make a worthless contribution of a long post to the board this morning. I am getting on a plane to head out to Utah for the week, so I may not be able to post a lot of replies promptly, but should have time to mess around the next time I have insomnia, as I begin typing this very early in the morning. (OK, just one small sux...insomnia really sux).

First, a couple of quotes:

Warren Buffet: "Frugality is not about going without. It is about saving for and spending your resources on what you really want"

Albert Einstein: "The most powerful force in the universe is compounding interest"

As you read this post, I would suggest that you don't get hung up in the minutiae of it all, but instead focus on what I am trying to do: I am trying to encourage people to think about their future, and take action to make a plan and measure against that plan (you can't manage if you don't measure). With the spending of the holidays coming and the typical movement to set goals at the beginning of the year, it is a good time to think about some of this stuff if you haven't.

Many of you may have seen that I have said many times that setting a goal to have a $million net worth by the time you are 40 might be something to consider. Here is that net worth road map:

Age 40 - $1 million
Age 50 - $2 million
Age 60 - $4 million
Age 70 - $8 million

Now, before you have a kaniption fit, take a look at the pattern and apply it if it is different to you. For example:

Age 40 - $500,000
Age 50 - $1 million
Age 60 - $2 million
Age 70 - $4 million

(or start at $250K, etc.)

Many people ask - how much do I need for retirement. Very good question. A conservative number is that you can begin drawing at your retirement with a 4% annual draw and increase that with inflation over time. For example, if you had $1 million at retirement, drawing $40,000 the first year and $41,000 the second year (assuming a 2 1/2 % inflation rate), etc. So, looking above, a $4 million nest egg would generate a starting draw of $160,000, with $2 million half of that and $8 million double that.

So right now, many of you are thinking, I don't need that much money. Here is a perspective to think about:

When I started working in 1987, my initial wage was $10.50 an hour, or about $21,000 a year. $100,000 salary sounded like exceeding riches to me at the time (and it probably was). Not so much today. Similarly, if you think you need (using round numbers) $75,000 a year in retirement, how many years away is that from now and do you really think that will be enough (in 10 years? in 20 years?) I would recommend making your target on the large side so you don't under plan and inflation takes a bite out of your behind.

As I thought about the roadmap numbers above, two quick thoughts came to mind:

1. Be careful about making your home too significant a piece of your net worth. Why? Because your home doesn't produce income (reverse mortgage excepted) unless you plan on turning it into a B&B or a pimp house, nor does it typically grow that quickly (the housing bubble period excepted).
2. More importantly: The danger of the attitude of toooooooooo many people, "I will start saving for retirement when I am older" or, "I will start saving for retirement or reduce my retirement savings until after I put money away for my kids education". Can be devastating to the timeline.

Between adding more savings as your income grows and typical market growth, it is not crazy to assume you can double your net worth every 10 years. The smaller the base, the more likely you can exceed doubling your net worth in 10 years. Again, it is a road map and a simple goal setting tool.

I am assuming that most people reading this are behind the 8 ball. Nothing you can do about the past, but there is a lot that you can do towards the future. Start today. I can think of two of my close friends. One who is around 40, and has essentially nothing, and one who is around 50 and has a couple of hundred K $$. Both of these guys have asked for my help to get going/accelerate. Will they catch up? Probably not. Will they make a huge difference on the quality of their retirement years? Absolutely. Start this minute.

What is interesting about the examples above is that I would bet 90% of the population are at the same place or worse than those two guys. Those two guys are probably doing better than most. This is why this is my soapbox. I think a difference can be made, so I keep pontificating...

I am also reminded of a friend I had in my 30's. We moved away and I have lost contact with him, but he and his wife used to say something that I found very interesting. Here it is: "we would rather have memories than a savings account". There are some interesting perspectives within this statement, and one key take away. Memories and savings accounts are not mutually exclusive, nor should they be. You have to enjoy life with your family and make some memories. You also have to save for your retirement. You can do both. You may not be able to do it to the extent of people you know because you make less money. It is time to get over that. Be happy with what you have. The four most difficult words in the English language are: I can't afford it...

On comparing yourself to people. It is hard not to do. I always tell my HCBW: balance sheets are invisible. What that means is you have no idea how much debt or how many assets anyone has. If you have seen as many personal net worth statements as I have seen, you would probably be as surprised as I typically am. I can't believe that people are like the grasshopper 90% of the time, instead of like the ant. Sometimes I just want to say, "are you drunk"??!!!!! (apologies to any of you chronically inebriated...)

There are so many little, simple things that can be done to increase your standard of living so that you can have it all. Example: Bring your lunch to work (sales people and relationship building jobs excepted). Here is the thing - saving the money from the lunch and spending the time working during lunch will pay huge dividends. Having the attitude of working 7:59 to 5:01 with an hour lunch will reap what you invest. You don't have to sacrifice everything to work hard - it is called going to bed early and getting up early and starting work early. Is there anything really accomplished after about 9 PM at night? Getting up at 6 AM is pretty easy if you go to bed at night.

Eating out for meals is an absolute killer for meeting financial goals. Not only do you spend more money, you usually get very high caloric meals. I am not speaking absolutes here. It is fun to have a meal out, but it is HUGE dollars over a lifetime to do it a lot. You might ask yourself, what is it that you really want?

Career development and increasing your wages. Clearly education and training is usually very important. Changing jobs probably also accelerates your earning power. Are you willing to relocate - that may be a huge catalyst. How to do this - that is, to find career opportunities? Network, network, network. It is amazing the opportunities that come simply because you know someone. (I am really bad a networking for the record). A regular and constant focus on enhancing your career is extremely important.

It is easy to see. There are lots of things that require very little sacrifice (or none at all really) that can make a huge difference in your life and perhaps get you the financial freedom that the 1% enjoy.

Sorry - the last few paragraphs are a little silly and probably not much value added - just rambling on in the middle of the night. Either way, thinking about some opportunities within your own situation can be found between the lines.

Do something. Do it today. Do it for the rest of your life. Making a mountain out of a mole hill can also be a positive event.
This message has been modified
Originally posted on Nov 22, 2014 at 5:31:53am
Message modified by Acorn on Nov 22, 2014 at 5:33:38am
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Acorn
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Acorn
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