Quit and Retire Three Years Earlier

For most people, there is a direct correlation between how worried they are about retirement income, and how much they can actually do about it. This is because the more worried you are, the closer you probably are to retirement, and the less time you have to do anything – like save up. Effective ‘saving up’ requires time. Time so your money can grow. Save an extra $200 a month, three years before retirement (at age 62), and you’ll amass a grand total of $7,887 (averaging 6% growth). Not likely to have a big impact on your retirement lifestyle.

But what if you invested for retirement when you were NOT worried about it? What if you, say, quit smoking a pack a day at age 45 and took the money and invested that instead? (For the purposes of this illustration, let’s assume a pack costs $7.00 and you smoke a pack a day so you invest, for easy figure’s sake, $200 per month. Again, average compound rate of return is 6%.)

Instead of starting to save when you start worrying about retirement (at age 62), and amassing that grand total of $7,887 by age 65, you start saving when you’re NOT worried about retirement (at age 45 – by quitting smoking and saving that money) so you end up with, wait for it, --- $91,129 !

What will $91,129 do for you at age 65? It would provide you with $456 in additional monthly income for the rest of your life (continuing to average 6% growth), and you won’t have to touch your capital. Or, perhaps, you could choose to retire earlier!

Don’t start to worry, at age 62, and save a paltry $7,887 by 65. Instead, start saving $200 more a month at age 45, when you’re not worried, and have $69,892 by age 62! Then you could retire completely at age 62, by using both the principle and interest as income from 62 to 65. $69,892 would provide you with $2,100 in income for three years! Thus, quit smoking and quit working 3 years earlier!

Of course, most of us ‘act’ when we have the ‘urge’ to act. (Note how the words ‘urge’ and ‘urgent’ have the same root.). You will tend to act on your retirement plan when it is most urgent. But long term goals are, by their very nature, NEVER URGENT! Now, perhaps THAT is something to worry about.

Rick Hoogendoorn is a financial security advisor with Cheri Crause & Associates Inc. (He quit smoking ten years ago this month.) Cheri Crause is a certified financial planner in Victoria, BC.
www.chericrause.com
rick.hoogendoorn@shaw.ca

Everybody wants to learn how to make money on the Internet. What about saving money for retirement and your future? If you don't do it, who will? Alan Greenspan, Chairman of the Federal Reserve Bank, recently confronted the U.S. Congress about the cost of future retirement benefits.

You may recall the 1999 Tom Hanks film, "The Green Mile". This film adaptation of Stephen King's novel provides just a couple of comparisons to current economics and Alan Greenspan. Greenspan's comments before Congress sometimes equal the length of "The Green Mile" (3 hours), but his testimony won't evoke tears unless you're a baby boomer, soon to be a Social Security beneficiary.

In "The Green Mile", Hanks plays a prison guard charged with the care of death row inmates. He treats each "death row" convict with care and Southern civility. In order to avoid stretching parallels to the movie, I will observe only that Mr. Greenspan, born in New York City (March 6, 1926; send him a card) is civil when Congressional Committees question his opinions.

"The Green Mile" ends at the hot seat for convicts. Alan Greenspan's February 25, 2004 testimony leads to an economic, political, and social hot seat: Social Security benefits. I suggest you read the full text of his testimony found at: http://www.federalreserve.gov/boarddocs/testimony/2004/20040225/

Now to "The Green Span" hot seat comments about Social Security:

• We sing Happy 62nd Birthday to the first baby boomers in 2008
• 50% of them may retire at age 62
• Everyone's gong to live longer
• Social Security costs will escalate
• Funds to pay may not meet the demand

What does this mean to you? Well, it's motivation to make that site sell while saving toward retirement. Further, every site generating cash flow, may do so for years and years, if managed wisely. This means qualifying for retirement does not force you to retire. Cash flows can continue for your life time.

However, saving for retirement still makes sense. It saves you taxes now and later. Furthermore, an aging population living longer means Social Security benefits may be reduced when you become eligible. So, start saving now by starting any one of the following methods.

• Individual Retirement Account: You may contribute up to $3,000 in 2004, $4,000 in 2005-2007, and $5,000 in 2008 and beyond. When you reach age 50, "catch-up" provisions allow you to contribute an additional $500 in 2004-2005 and $1000 in 2006 and beyond. This means your IRA contribution in 2006 may be up to $6,000.
• If your Internet web site incorporated, you may have an employer sponsored plan. The Savings Incentive Match Plan for Employees (SIMPLE plan) "SIMPLE plan contribution for 2004 amounts to $9,000. This increases incrementally to an "adjusted" $10,000 in 2006.
• A SAR/SEP and 401(k) let you contribute up to $13,000 for 2004 (the maximum in 2006 is up to $15,000) Employer sponsored plans also allow "catch up" provisions for workers over age 50. For example, an employee over age 50 may contribute a "catch up" contribution of $3,000 for 2004 (the maximum "catch up" contribution is $5,000 in 2006).

IRA accounts and employer accounts may be opened at banks and brokerage firms. Check with your tax adviser and financial consultant first.

Social Security provides for basic needs during retirement. Make sure your resources permit the lifestyle you want by saving for your retirement now.