Retirement is going to spring up on a lot of people far faster than they expect. How do you ensure that you can afford to retire, and get to retire well?
Experts are warning that we are on the verge of a massive global crisis. One far larger than we’ve seen before. It’s all because the vast majority are not prepared for retirement. Millions of boomers are retiring, and Generation X isn’t far behind. Yet, only a tiny, tiny, fraction of the population is on track to be able to retire. It’s a tragedy to see people struggle in the last few decades of their life, and what that means for their families, and the potential for the next generations. So, what do we need to know to retire well? How can we get smart and change those dynamics for the better?
The first step to retiring well, or to achieving anything in life is to know what you want. Regardless of whether you are hitting retirement age next year, or not for several more decades, you’ve got to get clarity on this now, and then make a plan. Without that, your results will probably be far, far different than your desires. So, what do you want? How old to you expect to be when you retire? How many years will you live in retirement, given that living to 100, or beyond is becoming increasingly likely? How will you spend your time? Will it be on the porch in your home town, waiting for the grandkids to come by? Will it be golfing, shopping, entertaining, fishing, or travelling? Or will it be supporting a cause you care about, pursuing a hobby, or working on a part time gig? Be clear about this.
How much will it cost to fund the lifestyle you laid out from the above? How much money will you need to cover housing and basic living expenses? How much will you need to support the daily lifestyle you desire? What about all the extra things you’ll want to do to fill your time? What about the larger financial needs your parents, kids, grandkids, and great grandkids will have? What about all those looming medical expenses which are sure to crop up? Will that be $100,000 dollars a year? $200,000? A million dollars a year? More than that?
The looming retirement crisis has mainly spawned out of years of misinformation. People just don’t understand how much they really need to retire, or how far short their plans are going to fall. If they did, they would certainly be trying to do things differently.
While most Americans have no retirement savings at all, among those that do, some data puts average balances at around $100,000. Only the top 1% or top 0.5% probably have more than $250,000 in retirement savings and investment accounts. Now let’s say you do the math above and figure out you are going to need at least $150,000 a year to live comfortably in retirement. Well, if you aren’t going to retire for another 20 years, and we experience 3% inflation per year, you’ll actually need closer to $271k per year to afford those things when you retire. To survive in retirement from 65 to 100, you’d need almost $10M at retirement to draw down from. Come up short and you may be in some serious financial straits for the last few decades of your life.
Not many people are going to be able to save their way to $10M dollars. Most won’t even come close to $1M. Some savings are important, but it’s just not going to earn you financial freedom or the ability to retire.
Have some savings for cash emergencies, and cash shortages, but don’t rely on them for your future. Look at the above numbers and you’ll realize that you can’t earn your way to saving enough. If you rely on simply trading your time for dollars, you need to be working 30 hours a day, or making hundreds of dollars an hour to come close.
So, to get ahead, you’ve got to invest. You’ve got to be making money even when you aren’t working. You have to be making money while you sleep, and multiple times what you could make in any job.
You can’t count on most generic calculations about stocks to retire. The numbers are manipulated and rarely take into account all the related fees and taxes, or the true impact of stock market crashes. CDs and big funds will rarely return enough to keep you ahead of inflation. At the same time you don’t want to gamble everything on a risky tech startup. There may be a place for all these things in your portfolio eventually, but don’t rely on them for the financial security you need.
Where individuals can get ahead is by focusing on passive income investments which can give them extra money every month, starting now, and through retirement. That way, even if you don’t have $1M saved, you may still be able to meet all your income needs through monthly cash flow. Real estate investments are one of the best ways to achieve this, and they can be far safer and more profitable than the above mention options.
Don’t be caught by surprise, and unprepared. Recognize that a wide variety of factors could result in your having to retire at any time. Unexpected expenses always creep up too. So, don’t just shoot for the minimum you need if everything goes perfectly. Shoot higher so that you’ll be fine regardless of unexpected costs.
Don’t neglect the present, so you don’t have to live with regrets in retirement. That means getting ahead financially now, but also spending time with those you love too, and pursing things you care about. Then help others get in gear for their retirement as well.
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