It’s Never Too Late to Save for Retirement – Never!
by Shane Flait ©2010

Think it’s too late to save for retirement? It’s not because every little bit can bring you more income and more opportunity. This article shows how a little savings can put you ahead of where you thought you were.

Let’s suppose you don’t have much, don’t make a lot, and will retire in only 10 years. What can you save that’ll be worth the effort?

I’m going to assume you have $50,000 of savings. At an investment rate of 8%, that’ll grow to about $110,000 in 10 years without contributing any more.

Now, let’s decide to beef up your savings by contributing something every year for 10 years. 

Suppose you can contribute $5,000 per year for the next 10 years. How much more will that add to your savings in 10 years if the growth rate (from investments) is 8%?

Contributing $5,000 per year for 10 years with an investment growth rate of 8% will accumulate a savings of $78,225.

 Your total saving projection will then be $188,225 (= $110,000 plus $78,225 due to contributions). That’s a lot of money.

At a 4% withdrawal rate for income from a savings of $188,225 you’d get $7,529 per years (or about $20.62 per day). The 4% is a conservative withdrawal rate. Generally it should not cause your savings to deplete, but perhaps grow slightly over the years.

So is a $7,529 yearly income (or $20.62 per day) worthwhile? Yes it is! There are some offshore places where you could live somewhat comfortably just on that amount of income. That’s worthwhile knowing.

If you had nothing to begin with – instead of that $50,000 – you could struggle to save $10,000 per year for those 10 years and accumulate $156,450 at an 8% investment growth rate. At a 4% annual withdrawal rate you’d get $6,258 per year income.

How can you save $5,000 or $10,000 per year if you’re just barely living on your working income now?  Find a second job and put it all into savings.

If your income isn’t very high (under $56,000 in 2010 if your single; $89,000 if married) and you’re over 50, both of which I’m assuming, you can open an IRA and contribute yearly (in 2010) as much as $6,000 as fully deductible. That means if you just earn $6,000 in a part time job, you can contribute all of it without paying taxes on it to your IRA.  Taxes are deferred until you withdraw your money during retirement.

You’ll probably get Social Security benefits too when you retire. If you received about $1,000 per month (about average) for Social Security, you’ll get $12,000 per year.

You can see that your savings program efforts will add to your Social Security income by at least 50% or more. And that’s a significant increase to your retirement income.

Lastly, accumulating some $150,000 plus of savings over the next 10 years can do wonders for your other retirement-related options. Using it to buy property – offshore or not - to live in or rent out can surely enhance your peace of mind and lifestyle.

Yes, it’s never too late to begin a savings program, because with savings – no matter how small – options you haven’t thought about begin to come into play.’

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com