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[S120]Saving Enough For Retirement

by Amy Nutt, Amy

Saving for retirement is something that everyone needs to consider, as it is an important long-term goal. Every working person, no matter how old he or she is, will eventually reach retirement age. Once you person retires, they will no longer be earning the income that they were accustomed to receiving every pay period. In order to deal with that loss of income and still be able to pay bills, maintain their lifestyle, and survive in general, every working person needs to plan ahead.

Time is on Your Side

The earlier you start planning and saving for your retirement, the better. If you are in your 20's or even your 30's, retirement may seem far away, and you may think you don't necessarily need to worry about it at this point in time. You may find yourself juggling many competing priorities that require time and money. You may even think that there is plenty of time for the American government to fix the social security system so that it can actually take care of you when you retire.

Well, while an optimist may hope for such a positive outcome, the truth is, the social security system is not designed to take care of all your financial needs after retirement. The best thing to do is to save for your own retirement. If you are young, you are in a perfect position to maximize your savings for a much better potential outcome. That is because you have time on your side. Time, when combined with money, is a very powerful tool. First, there is the obvious -every year you save for retirement is another year's worth of savings to add to your egg's nest. Of course this has plenty of value in itself. For example, if you save $3,000 every year for 20 years, versus saving the same amount for only 10 years - well, do the math. More importantly, however, is the value that compounding adds to your investment.

Compounding

Compounding can be explained simply as the ability of your investments' earnings to earn additional earnings by automatically reinvesting all interest, dividends and gains. Confused yet? Basically, compounding multiplies the growth of your savings by earning interest on interest earned. Suppose you save $10,000 in an interest-earning retirement savings account. Imagine that the first year, the account earns 20% (granted, this is beyond optimistic, but stay with us). Your investment is now worth $12,000. Since this is a retirement account, you don't touch it. In Year 2, the shares appreciate another 20% (this is just an example). Therefore, your $12,000 grows to $14,400. Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $2,000 you gained in the first year grew by 20% too. If you continue to work the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000 (and that's without adding any money to the investment)!

Tax-deferred Growth

Another very important reason to start saving for your retirement as early as possible is the tax benefit that you will enjoy. Most retirement savings account, whether they are IRA's or employer sponsored programs, are tax deferred. This means that the tax you would normally pay on the portion of your income you contribute to your retirement savings is essentially given to you tax-free. This makes a huge difference when combined with compounding. As you can see, there are many benefits to start saving early for your retirement, but don't forget - it's never too late.

Setbacks like losing your job and life-threatening medical conditions are surprisingly common in later life.

A recent Boston College study has found that the results can be particularly devastating for those nearing retirement. The college's Center for Retirement Research studied people in their 50s and 60s and found that: - About 1 in 5 lost their jobs during a 10-year study period from 1992 to 2002. Among married couples, nearly one in three experienced job loss. - Forty-one percent of those studied were diagnosed with a major medical condition such as heart problems, diabetes or cancer. - Thirty-four percent experienced health-related limitations on their ability to work. - Eight percent were widowed, 7% experienced a severe disability and 4% divorced.

Overall, the study found 6 out of 10 people in their 50s and 60s experienced some kind of serious negative shock that threatened their financial security.

How to protect yourself:

These are scary statistics, but they convey an important truth about retirement planning: you can't assume everything will go right.

Now here's how you can apply that knowledge:

Don't put off saving for retirement.

The more money you have piled up by your 50s, the better you'll be able to survive whatever surprises life throws your way. People who put off retirement to save for other goals, or simply spend more, are missing out on critical time that can help them growth their wealth. But they're also leaving themselves vulnerable to the setbacks described above that could prevent them from accumulating needed wealth.

Take advantage of any workplace retirement plans or, if you don't have access to any, start setting aside money on your own.

Get covered.

Having health and disability insurance can help protect you from the financial fallout of accident or illness. If you can't get this coverage through an employer, consider buying individual policies. If you find yourself without health insurance, read "A survival guide for the uninsured" for tips on how to protect your well-being.

Live a healthy lifestyle daily.

We can't make ourselves immune from disease, but we can better our odds for a long, healthy life by eating right, exercising, getting regular checkups and finding appropriate ways to deal with stress.

Continuously update your job skills and contacts.

Keep yourself marketable by taking on new responsibilities or learning new skills through courses or seminars. Look to start multiple sources of monthly income through prudent investing that are independent of your employer.

Don't Rely On Others To Manage Your Money.

Learning the basics of investing can increase your rate of return and prevent you from working with financial advisors who may have interests that conflict with what's best for you.

Copyright (c) 2008 Paul McBride

Article Source : Pg. 325

About Author

Both Amy Nutt & Paul Mcbride are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Amy Nutt has sinced written about articles on various topics from Culture and Society, Recreation and Sports and Women. One of the world's largest and most established offshore investment firms provides , offshore investment accounts, offshore mutual funds and offshore. Amy Nutt's top article generates over 368000 views. to your Favourites.

Paul Mcbride has sinced written about articles on various topics from Treadmill Exercises, Finances and Treadmill Exercises. Paul McBride specializes in creating extra monthly cash flow through part-time and full time home businesses and teaching customers how to manage their own financial investments.Free information available at. Paul Mcbride's top article generates over 2400 views. to your Favourites.