|
May 2006 |
|||||||||
This is part four in a series in which Debt Matters is exploring savings plans for every decade of our lives. To read about saving in your teens, click here. For your 20s click here. For your 30s click here.Saving In Your 40s: Need to See Results If you could monitor all your friends' bank accounts, portfolios and credit card statements, about age 40 you'd see a wide disparity in wealth. For 30 year olds, the world is pretty much divided into those who've started saving and those who haven't saved anything. But in your 40s, decisions you made as a younger person are coming home to roost. A tale of two savers Here's the real kicker. Lots of people postpone saving by saying, "I just fathom squirreling my money away and not touching it until I'm 65? I need the money now." But the reality is that savers start to benefit from the savings they made in their 20s and 30s as early as age 40. They enjoy more security and they don't have to scramble for retirement. Consider the person who has $50,000 saved versus the person who has saved nothing. By earning just 6% in an investment, the saver will enjoy $3,000 in investment earnings even if he saves nothing. Having saved money when times were good gives him peace of mind in case of job loss or a financial emergency. Also, $50,000 saved buys more freedom. Suppose your company moves its headquarters to a new city. If you haven't saved a dime, you probably can't afford not to follow your job, which might mean uprooting your family. But the saver can rest assured that his wealth will probably grow even if he saves nothing that year while finding another job.
If you managed to put away $50,000, keep doing it and set another goal for age 50. You should be approaching your peak in earnings potential so try to sock away some real money and you'll enjoy even more security in your 50s. If you add $10,000 to your $50,000 each year in your 40s, while earning a 6% return, you'll enter your 50s with $221,000. Saving $10,000 a year may mean making some tough decisions. Don't let a bigger home or a wine and dine lifestyle jeopardize your financial position. Enjoy life, live modestly and save big. If you've saved nothing… Okay, the good news is you're not alone. With a savings rate of zero in 2005, plenty of Americans are hitting their 40s with little to show for it. The other good news is that you've still got 25 to 30 years to cram for retirement. And the current tax law enables you to sock away considerable dollars tax-sheltered. Open your IRA and take advantage of your 401(k). The important thing to realize is that you need to establish financial security quickly. You'll need to live frugally and need to earn a good income if you want to retire comfortably and on time. It can be done, but only if you start soon. |
|
|
|
|
|||||
