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by:
JT McNaught |
A
very wise and good friend of mine told me once: "One good investment is
worth a 'lifetime' of labor." After reading this article, the wisdom
behind this statement will be clear to you.
The big question we should all be asking ourselves is "how much do
we need to save to be able to support ourselves?". We cant estimate
that unless we first make some basic assumptions:
A zero-inflation is unrealistic. It's safe to assume however about
2% inflation. If it is higher than that, it is bad for the economy of
the country., The Bank of Canada is is mandated to keep inflation under
control, using interest rates. If the average rate of inflation for the
next 50 years is 2%, then a dollar 50 years from now will be worth
roughly (1 - 0.02)^50 = 36 cents. So if save one million dollars today,
these retirement dollars will be worth about $360,000. That's still
enough to give you an annual income of $36,000 -- well above the
poverty level.
Compound interest is powerful magic. In 50 years, money doubles roughly 7 times, which means that a single $1000.00
investment will grow to roughly $128000.00. Other than the work you
did in the first year to save the money, you haven't had to do anything
for the next 50 years.
That's roughly one-tenth of the million dollars most people would
like to have sqirreled away for retirement. If you also want to have a
million dollars, you'll need to invest about ten times this amount:
say, $1000 a year for the next 10 years. Or roughly save $100 a month.
Not too difficult is it?
If you can save more, sooner and earn more longer; this is better.
Hence the name of my website http://www.BetterRetirementSooner.com.
Lets not forget about the federal and state taxes we have to pay
every year. We dont have many tax breaks anymore, but the RRSP / 401(k)
is there for us to use. Your RRSP / 401(k) is your friend because the
money that you put into an RRSP / 401(k) is not taxed until you draw
from the plan.
If you can make a 10% return on your money inside your RRSP, you
get to keep the entire 10% and the compounded untaxed growth dollars
until you retire and start making withdrawals. If this same 10% was
earned outside your RRSP/401(k), and your yearly marginal tax rate is
roughly 45%, you only get to keep about 5.5 percent of that. So you can
reinvest less,and therefore your money over the years will grows
slower.
These days...How do you make a double-digit return on your money?
GICs are a low risk investment. And respectively, GICS only pay upto
5%. At 5%, it will take 14 years for your money to double. A $10000.000
GIC will grow to about $115,000 over 50 years. If you managed to save
$300 each month instead of $100, you could get up to $300,000 or
$400,000, but you should also think about taking on a little more risk
than just GICs. What do you do if you cant wait 50 years for your
retirement nest-egg?
According to Statistics Canada the stock market has maintained an
average return of 9% annually. If you're not a seasoned investor, you
may not be comfortable with the idea of putting your money into the
stock market. Trust me, if you do not know what you are doing, leave
the stockmarket to the professionals because you can lose your shirt.
Don't try to time the markets yourself. There are to many variables
and you don't have the information required fast enough to make the
timely decisions necessary to be profitable. An inexperienced Day
Trader will fsail as miserably as an inexperienced gambler! The odds
are very much infavour of the house!
Large mutual funds are a good investment vehicle. You can regularly invest a small amount every month in a mutual fund
instead of stocks, realize better growth than if you invested in a
stock or two yourself. Mutual funds reduce the risk of losing all your
money because they are managed daily by professional money market
analysts. Politics and the economy are very difficult to predict.
Merely not being able to sell in the first few hours of a crisis can be
very very costly to you and your retirement fund. A Mutual Fund manager
will be ready and better prepared to properly deal with a major shift
in the market so we dont all lose our shirts.
You must Plan and budget to build Savings. If your goals and your
expenses are out of balance -- there's no way you can save enough to
meet your goals -- make a first pass through your expenses, seeing
where you can trim them. Even consider lowering your goals a little.
It is usually much easier to save $100.00, than it is to earn an
extra $200.00 because of the taxes payable. Roughly $100 in tax must be
paid on that extra $200.00 you earn based on your middle class tax
bracket. So planning yor retirement at a later stage in your life,
starts with a change in priorities. Begin spending less rather than
trying to work overtime to earn more. You may have to do without some
of those "nice to have items" that you are dreaming of, or you may end
up having to eat cat food in your later years if you don't!
Once you've got some savings accumulated, keep three months worth
in a bank account for short term emergencies. Liquid assets are the
easiest to get your hands on when yo need them. Dont worry about making
big interest on this money. When you have your emergency money saved,
we can talk about savings-building options, to meet our goals. Once you
have your short term nest egg squirrelled away, you can begin regularly
contributing to long term investments for retirement.
Can You retire at 65? Because of modern medicine, our life
expectancy is longer. Much longer now in 2005 than it was in 1927.
Whereas, we used to live until an average age of 61, we now live to an
average age of 78! Do you know? The chances are that if you live to be
65, there is a 25% chance that you will live well into your 90's today.
There is a big problem with this because of our life expectancy, we
need live longer on our retirement savings, much longer! So it is
harder to retire comfortably today! This means that if you did not
start saving significantly when you were young, most likely you will
NOT have enough money to live well, for very long, after you are
retired, unless you win the lottery. But don't panic! The
situtation is still not that desperate.
In fact, Financial advisors are now telling older people not to
retire at retirement age, but instead, keep working. Work, even part
time, as long as you can after the official retirement age. This helps
to build furthur savings or at least stretch the savings you did have
so you can live well in retirement longer and wealthier. The bottom
line is, we all need a lot more savings and even so, one can no longer
retire well on savings alone - at least not for 20-30 years of
retirement - thats for sure!
What if you dont feel like working into your 70's? What if Mopping
floors at Walmart and flipping burgers for minimum wage at MacDonalds,
until your 70, is not for you? This is the million dollar question!
Remember my friends statement: "One good investment is worth a 'lifetime' of labor."? If you have an investment that is
bringing-in income, month after month; monthy income for the rest
of your life , then you have succeed in securing a wealthy retirement
for yourself. You can retire and not worry about running out of
savings! Cool. What kind of investment are we talking about? We know
real-estate rental properties are such a means because they are not a
lot of work adn they bring in money month after month. This is not the
only way though.
We are lucky today. We have some really good options for earning
money now. In fact, because of the internet, we have the entire world
as our marketplace now. Via the internet we can all have a home
based-business and a customer base too! All we need is an internet
business that we can tend to a few hours a day...a business that will
generate monthly income for us 24/7/365 days a year, for the rest of
our life.
Here are some Recent Internet facts and Figures:
1. By 2007 there will be 1.1 billion Internet users worldwide. - IDC, 2004
2. Worldwide broadband subscribers exceeded 150 million in 2004. - Point Topic, 2004
3. Over 40% of all Americans have made a purchase online. - NDP Group, 2004
4. Over 75% of online consumers do not care whether an online store is run by a large or small company. - TNS, 2004
5. $1.6 trillion was made via e-commerce in 2003; $7.1 trillion is expected in 2007. - Source: IDC, 2004
6. A recent UK study indicated that 82% of Internet users go online to research products and services. - UK Stats Office 2004
7. More than 60 million Europeans now shop online, an increase of 50% since 2003. - Forrester, December 2004
8. US online retail sales will more than double over the next six years, reaching $316 billion by 2010. - Forrester, Aug 2004
9. 61% of small and mid-sized enterprises believe the Internet is a significant advertising medium.-The Kelsey Group, Nov 2004
10. In 2004, paid search advertising grew by 51% to $3.6 billion in the US alone. - eMarketer 2004
The internet has big potential and opportunity that we did no have back in 1927. It should not be overlooked or under-estimated!
If you can save more, sooner and earn more longer; you will have
secured yourself a fabulous retirement! Hence the name of my website
By JT Mcnaught.:
http://www.betterretirementsooner.com
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