“Hope is an expected end.” – TD Jakes

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Hope is a great thing, but hope alone won’t get you to your goal.  Saving for retirement is all about hope coupled with some concrete action.  I can hear you grumbling about today’s excursion into the world of retirement.  If I close my eyes, I can visual you you saying, “I have thirty years until I retire so why should I save now”.  While I empathize, it’s never too early to begin saving for retirement.  Did you know that in 2011, the average life expectancy in the United States was 78.64 years (World Bank)?  Let’s do a bit of math.

Normal Retirement Age                       65

Average Life Expectancy                    78.64

Difference                                          13.64 years

Sure, that’s pretty modest given the fact that people are living longer and longer these days, many well into their eighties and nineties.  If someone had a crystal ball and they told you that you would live to see your 90th birthday, would you have enough money to last for 25 years?  I’m sure that there are some people out there who could answer in the affirmative, but for the majority of us, this is nothing more than wishful thinking at this point.

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Education:

In Lesson #1, I introduced the wealth-building continuum.  Right now, you are most likely in the ACCUMULATION phase of your life.  Retirement, on the other hand, can be viewed as  the DISTRIBUTION phase of your life.  Simply stated, your accumulation years are your working years.  This is the time when you can make mistakes and then make the adjustments needed to ensure that you have or are creating the resources that you will need to be comfortable during your retirement years.

The reason that we want to begin saving for retirement now is that we want to take advantage of something called the, Time Value of Money (TVM).  The TVM is the idea that money available today is worth more than the same amount in the future due to its potential earning capacity.  The earning capacity is why you want to get into the game now.  If you determine that you need $1 million dollars during your retirement years and you only have $1,000 saved now, that would suggest that you have some serious work to do.  However, it’s not impossible, if you begin saving for retirement today.

Since you have twenty to thirty years to earn and preserve money, you can take on more risk in an effort to increase your earning capacity during the accumulation phase.  Once you reach the protection phase of your life, your focus will shift to preserving what was earned during the accumulation phase.  This long-term horizon gives you maximum flexibility to take advantage of the products that are available to help you reach your goal.

For an example of the Time Value of Money, click the link below to see a brief video and example.

Time Value of Money

This week, we will concentrate on creating, understanding and exploring retirement assets.  Some of the things that we will discuss this week will include the following:

  1. Defined Benefit Plan vs. Defined Contribution Plan
  2. IRA vs. Roth IRA
  3. Qualified Retirement Plan vs. Non-qualified Retirement Plan
  4. 401(K), including UniK or Solo 401(k) Plans
  5. 403(B)
  6. 457 Plans
  7. SEP
  8. SIMPLE
  9. Keogh
  10. MyRA (President Obama’s new retirement option)
  11. Tax Benefits of saving for retirement
  12. Your number – how much you will need to retire.

Resources:

KMSYKESCPA.COM Knowledge Center – Financial calculators and guides available to help educate

Important terms from this lesson:

Term

Definition
Time Value of Money (TVM) The idea that money available today is worth more than the same amount in the future due to its potential earning capacity. 

Action Step:        Calculate your life expectancy. 

Click of the link and fill in the questions to calculate your life expectancy.

Life Expectancy Calculator

Keep this number handy and refer to it in future lessons.