Читать книгу Personal Finance After 50 For Dummies - Eric Tyson - Страница 26

Throughout this book, we discuss financial strategies and tactics for making the most of your money over the coming decades of your life. The sooner you get control over and optimize your finances, the bigger your payoff will be.

You should never rush into making changes that you don’t understand and haven’t had time to properly research. Procrastination comes with many costs, including lost financial opportunities. Creating a financial plan and sticking to it is so important when planning for retirement. Chapter 3 helps you make your own plan.

Consider, for example, something that nearly everyone wants to do: save and invest for future financial goals such as retirement. Take the case of the Fuller family, who came to Eric for financial counseling years ago. The Fullers enjoyed a healthy and relatively stable income, yet they saved little, if any, money annually. They knew how to spend money!

In terms of savings, they had about $100,000, which may sound like a lot, but given their annual income ($150,000) and ages (late-40s), they still hadn’t accumulated savings equal to a year’s worth of income. The money they had wasn’t well invested — nearly all of it was in low-interest bank accounts and a pricey life insurance policy that provided just $500,000 of coverage (not nearly enough given their incomes and the fact that they had dependent children). Of course, they could have done worse (at least the money was growing slowly). However, they weren’t going to reach their retirement goals unless their money started working harder for them.

Over a number of months, the Fullers worked with Eric and were able to implement the following changes, which they stuck with for the years that followed:

 They increased their savings rate. They were able to consistently save about 15 percent of their annual incomes (about $22,500 per year), which was up from just 4 percent ($6,000). They accomplished this through a combination of reduced spending and reduced taxes by directing their savings into tax-advantaged retirement accounts including a 401(k) and SEP-IRA.“Cutting our expenses was easier than I thought. We were wasting money on things we didn’t really need or even use in some cases,” said Mrs. Fuller. Her husband added, “We felt much more relaxed and less stressed by cutting our expenses and boosting our savings.”

 They improved their investment returns. Rather than earning a meager return having their money in low-interest bank accounts, the Fullers enjoyed 8 percent annual returns by investing in a diverse mix of stocks around the world along with some high-quality bonds.

 They purchased better insurance coverage. The Fullers needed about $1.5 million of life insurance coverage — triple the amount they had been carrying. They were able to buy that increased level of coverage along with some additional needed disability insurance by raising their deductibles on some other insurance policies and by switching to lower-cost (but still high-quality) providers.

So what were these changes worth to the Fullers? As they themselves said, they had much more peace of mind and comfort with their new financial situation. In the remaining part of this section, we briefly examine the true financial value to them over the decades following the changes.

If the Fullers had continued saving as they had been (saving just 4 percent of their incomes yearly and keeping that money in a bank account), in ten years (when they reached their late-50s), they would have accumulated $188,000. This would have put them in a relatively poor situation for their future retirements given their annual income of $150,000.

On the other hand, the changes (saving 15 percent annually and instead earning an average investment return of 8 percent yearly) would lead the Fullers to have more than $541,000 in ten years — nearly triple what they would have had if they hadn’t made changes. The differences are even more dramatic looking 20 years out. Check out Table 1-1 to see the calculations.

TABLE 1-1 The Long-Term Value of Saving More and Earning Higher Investment Returns

Number of Years	Status Quo (Save 4% per year, earn 2% per year)	With Changes (Save 15% per year, earn 8% per year)
10	$188,000	$541,000
20	$295,000	$1,494,000

By making sensible changes, the Fullers are well positioned to retire with a hefty nest egg. (In fact, they could consider retirement sooner.) In the absence of those changes, however, they would have a small amount and be unable to even come close to maintaining their lifestyle during retirement.