Working Your Way To Financial Freedom

Most of us know that stats show more than 40% workers do not save for retirement at all and more than 30% people will inherit less than $50,000.studies also show that the national rate of savings have fallen to 2% today, from the 10%and above that it was in the 1980’s.

Well, when we know all this, then why are we not saving? Most people retire at some point of time or other, but little do they plan to make life comfortable after. Some of the probable reasons could be -

Social security and pension

Suppose you have worked for Exxon Mobil (NYSE:XOM) or say General Electric (NYSE:GE) or maybe you have served as a teacher or a policeman, then you would end up with a decent pension though it will be lesser than what you earned earlier.

Even if you have worked for 25 years with a company that offers a defined benefit plan, for a salary of $50,000 per annum, you would  get a pension of $18750.together with your earnings from social securities(say $75,400 approximately).you would end up with a decent post-retirement income of $34,150.

However the catch here is the number of years you have worked in that company. Say, if you have worked for 15 years, your pension would drop to a meager sum of $11,250 and even after adding your social securities it would be $26,650 a year! Now that will be difficult to live on.

Another fix is that your pension benefit is not subject to inflation. Whatever you got at 65 years of age, is what you will get even when you turn 85.

Most of us ignore the fact that unless we end up with a real high pension, it will be difficult for us to make both ends if we don’t have our own savings.

Whopping inheritances

We all hear that baby boomers are supposed to inherit a huge sum of money, but how far is it true?

Many of the estimates made in the 1990’s have not materialized in the 2000’s.most of the inherited money is being spent on medical expenses because of the slow death-rates in the country.

Phil Marti, while answering questions on the Rule of Retirement Discussion Panel, had said the following about an inheritance of $300,000 -

“If it happens, it’s found money, but don’t count on it. My parents, who died at 89 and 90, got along pretty well until May 2000. My mother died June 2001 and my father May 2002. In between we spent well over $200,000 on home health care, plus all the other expenses that go along with maintaining a life.”
 

Tendencies to save later 

Always remember, that the earlier you start to save, the more amount of money you save. As far as saving is concerned, time and money are directly proportional to each other. See below how much a person could have saved at each stage of his life, keeping aside $3000 a year (which also happens to be the contribution amount to the IRA).

Age                         Amount saved at 65 years

25                            $914,031
26                            $601,623
27                            $391,932
28                            $251,184
29                            $156,713
30                            $93,303

So now you know that the value of your nest egg can be depreciated by a one-third, for even 5 years of delay. So I hope you have well realized that time is money.

Inability to save

If you have a family or you stay in an expensive area, it is difficult to save money. But with a little thinking and revamping of your expenses, you can definitely cut down certain costs which are not doing any real good to you.

We all have useless expenses and bad investments, like I had my gym membership and cable connection which I did not need that badly anymore. So when my wife was without a job, we decided to do away with both. In the process we saved $120 a month. Now that comes up to $1440 per year.

In 20 years time, if it grows at a yearly rate of 8%,then this $120 can grow up to a whopping sum of $71,275 and more than $100,000 in 25 years. Now, don’t you agree that our gym and cable were too expensive to us? 

The idea to work forever

Well, lots of people never want to go without work. It is definitely a commendable idea to be productive all your life. But the ideal situation is to work for personal satisfaction and not only for money. I am sure all of us would agree to that.

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