Planning For Retirement

Most people don’t plan to fail;
They fail to plan.

This slogan is not only a great marketing concept for a national insurance company; it is also the sad truth. Everybody has bills to pay. Learning to budget in order to pay those bills is not always easy. Finding room in that budget for retirement planning is sometimes very hard to do, yet it is essential. Unfortunately, it is the first thing dropped when the budget stretches thin.

Proponents of financial planning will tell you that you may need a written financial plan. This plan may be used as a tool to sell you insurance but it will also outline for you where you are spending your money and how much of what you earn is used to pay for your house, car, consumer debt, insurance, and savings. Knowing what your financial needs are is key to keeping them protected.

The idea of being debt free and financially independent by the time you retire is only a dream for far too many people. Why? Because they failed to plan or perhaps, failed to stick with the plan. Given the economics of today, we sure shouldn’t count on Social Security to provide us with anything more than the bare minimum. Life expectancy is growing and your retirement savings may need to stretch for many years. Retirement planning starts years before the goal of retirement is achieved. This planning needs to begin when the family is just starting out and when the need for protection is the greatest.

It is called the theory of decreasing responsibility. When you are young, and have small children, chances are that you have a high balance due on your mortgage and probably some consumer debt like a car payment and credit cards. So the need for protecting your main asset is very high, your main asset being you. Loss of income at this stage would be devastating. In these early years, you may not have a lot of money for the ‘what ifs’ of life. So insurance is required to properly protect your family from a spiraling circle of debt if the unthinkable were to happen. We don’t need insurance just to pay funeral costs; we need insurance to cover our loss and in this case, we are talking about the loss of a parent and the loss of income. Saving for retirement may be at the bottom of your list of priorities at this age but it needs to be on the list.

As you age, your responsibility decreases; your house is paid for or almost paid for, your kids grown, and your consumer debt is lower. So your insurance needs drop tremendously and those savings, which you have tucked away for years and years, are now ready to provide you with a retirement income.

You may ask how to achieve such a great plan. Well, a good start may be with the insurance you buy. The monthly cost of a whole life policy is enough to cover the cost of a term policy and a savings plan. With a whole life plan, the insurance company obviously insures you, and they will also invest your money in a fund for you, paying you a set interest rate from the growth of that fund. With a term plan, you pay a much lower premium for more coverage and you invest the difference yourself, say in a mutual fund, then you get to keep it all, setting yourself up with a nice little nest egg at retirement.

Starting this in your 20’s or 30’s keeps the premium low and provides the best chance at having your money grow. Without sounding like an insurance salesman, these policies are now offered for 35 years. If you started one at age 30, you would be 65 at the end of the term, and wouldn’t need to renew your policy at all. Why? Because you would have 35 years of savings ready for your retirement. Savings that could have you retiring with over a million dollars at age 65. It’s true, for example, if you invested $200 every month, in a mutual fund averaging 12%, at the end of those 35 years, it is possible, for you to have grown your money to; are you ready for this? $1.3 million!

Saving money in the bank has been stressed for decades but is it really the best place to grow money? Banks, if you’re lucky, may pay out 3%, and that $200 a month you are saving will give you $148,680 after 35 years. That great whole life insurance plan that has an investment feature built right into it, may offer you a 6% interest rate for a total pay out of $286,370. They will take your $200 a month; invest it in a higher yielding fund averaging 12%. Sure, they will pay you your 3% or 6%, but guess what they do with the rest of it. They keep it.

Finding the right investments are crucial. The power of compounded interest can not be ignored. Investment options and interest rates are tricky waters to wade through and professionals may be a tremendous help. A 6 % return on your money may sound like a great idea until you hear about compound interest and a rate of 12%. The point here is, it is all about choices. They are all yours to make. However, knowing what those choices are and how to make them work for you are the fundamental steps that you’ll need to take to reach your goal of financial independence.

Jenni Proctor

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