Water Well Journal
Issue link: https://read.dmtmag.com/i/728580
I s it too early for you to be thinking about retirement? Are you too young to be concerned about life after you've packed it all in? I hope you know the answers to those questions by now. The younger you are when you start applying the basic principles of sound money management, the better your chances of accumulating the kind of money you'll need to enjoy the good life in your leisure years. A million dollars may seem like a lot of money to you now, but if you're young—say under 40—even a million bucks won't be enough to live like roy- alty or anything close to it by the time you reach retirement age. And if you're older than 40 and haven't yet stashed away that million dollars, you'd better get to work today. Retirement will sneak up on you faster than you could ever imagine. When it does arrive, it can be one of the most carefree, fun-filled times of your life . . . or one of the most dreadful. Which way it turns out for you will de- pend almost entirely on how well you prepare for it. A retirement free of financial worries is a blessing. A retirement spent in de- bilitating worry about how to keep up with the relentless increases in the cost of everything you need to survive can be horrible. If you don't think so, just ask someone who is struggling to get by on Social Security and perhaps a small pension. Whether your age is 25 or 55, the most important question you need to ask about your retirement is, "How much income will I need to maintain my present lifestyle?" Know Your Needs Unless you're a CPA who specializes in retirement planning, you probably don't have a clue. Unfortunately, most people don't think much about retire- ment until it looms just over the hori- zon. By then, it's often too late to take the simple steps that can assure comfort- able and rewarding leisure years. Many financial planners say you will need 80% of your pre-retirement in- come in order to maintain your current lifestyle in retirement. So if you earn $80,000 per year just before you retire, you will need $64,000 per year to main- tain the same lifestyle. If your annual in- come is $120,000, you'll need $96,000 per year to retire in the style to which you have become accustomed. Rest assured that kind of income isn't going to materialize out of thin air. If you expect to enjoy a comfortable retirement, you're going to have to arrange for it yourself. No one else is going to worry about your financial health in retirement—not your employer, not your banker, not your brother-in-law, not your old Eng- lish teacher. If you don't take care of it yourself, it won't happen. (Unless you have an uncle named Warren Buffett who loves you. In which case, you can stop reading now.) And keep this in mind: When it comes to estimating your need for re- tirement income, you are far more likely to underestimate what you will need than overestimate it. If there are any fi- nancial surprises in this equation, they probably will be unpleasant ones. Yes, I understand you have Social Security. But all you can count on from that government program is a little gravy. Have you ever tried to eat a plate of gravy by itself? Probably not. Please keep that ugly picture in mind as a re- minder you're going to have to provide the meat and potatoes of retirement yourself. Making it Easier The good news in all this is the U.S. Congress has made it easier than ever to feather your retirement nest. They've laid out a smorgasbord of attractive re- tirement programs that earlier genera- tions could hardly have dreamed of. Still, they're not going to do the basic work for you. You have to do it for yourself. And that brings us to one of the most important principles of sound money management: You must participate to the fullest possible extent in every government-approved retirement pro- gram available to you. For a complete list of government-authorized retirement programs, including IRA and 401(k), log on to www.irs.gov/retirement-plans/ plan-sponsor/small-business-retirement- plan-resources. It would be difficult to overstate the importance of this principle. Never be- WILLIAM J. LYNOTT YOUR MONEY BEING READY WHEN YOU PACK IT IN No matter your age, you need to be preparing for your retirement years. waterwelljournal.com If you expect to enjoy a comfortable retirement, you're going to have to arrange for it yourself . Signing Off After more than 25 years of writing this column, I find it necessary to lighten my workload a bit. Because of that, this is my last column in the "Your Money" series. You'll still see my byline from time to time though. I especially want to thank all my loyal readers over the years, many of whom have become good friends, as well as the editors who have provided this column to you, the readers. 56 October 2016 WWJ