Are you saving enough?

Are you saving enough?

Two recent articles really concern me and I hope my readers do not fall into either of these groups.
The first had to do with how much Millennials think they need to save to retire comfortably.  And the Second had to with the fact that Most Americans can’t cover a $1,000 emergency.

In one of the post on my blog I talk about how much cash you need. While most of my writing centers on the need for long term saving and investing, this post talk about short term savings, how much cash you should have on hand and what you should do with it. If you are reading my post hopefully you are not one of the many Americans that have failed to put any money aside in an emergency fund. If you do not have an emergency fund I hope this article will help encourage you to set one up immediately.  Not having one will make any emergency you face that much worse both in the short term and for you long term financial stability.

One of my recent posts was about how easy it is to generate over a million dollars of tax free money if you start early. That was the good news. The bad news is many people will need a million dollars or more when they retire if they want to maintain their standard of living.  As I talk about in my writings it is important to have a plan in place to figure out how much you have to save. While a million dollars sound likes a lot of money you have to look at how much income it will generate and how much income you will need.


Many good financial planners will tell you that you can only count on spending 3-4% of your nest egg every year if you want it to last the length of your retirement. Using the more generous 4%, that only gives you $40,000 a year on a million dollars. If you are struggling to make it on $40,000 now what makes you think you will be able to make it on that when you retire?  If you are young you also have to realize that 20-30 years from now that $40,000 may only buy you a third of what it can today because of inflation.  So whether you have 10 years until retirement or 40 years to retirement make sure you are realistic about how much income you want your nest egg to generate each year to live the life style you want to. Once you figure out how much income you want multiply that number by 25 and it will give you a rough estimate of how big your nest egg should be by the time you retire.  

Comments

Post a Comment

Popular posts from this blog

Financial Emergencies, Be Prepared

I apologize for taking such a long break from posting, but after all the stories about the number of people living paycheck to paycheck during the government shutdown, I decided to start posting again. If you are a regular reader and have followed my advice you may not need this one, but please pass it to anyone you know that might; because; clearly, there are a lot of people that have not gotten the message. The first post I made on my bog was titled Pay Yourself First . Not doing so is a disaster waiting to happen. It is important you practice this philosophy all the time, not only to save for retirement but also to make sure you have something in case of an unexpected interruption in your income stream or other financial emergency. The economy is rolling along quite nicely at the moment, yet a lot of people still are not putting anything away for a rainy day. I feel empathy for all the government workers that went without paychecks but hope this is a wakeup call for them and f
Read more

Should you ever turn down the opportunity to earn more money to avoid higher taxes?

I am often asked that question in various forms especially around this time of year when people are thinking about their taxes. Sometimes it is a question from someone considering a promotion, new job or simply taking on overtime, other times it is people worrying about making too much money in their investments or their 401K and IRAs growing so large that they will have a “huge tax burden”. Granted our tax code is way too complicated, and many people including some financial planners, don’t fully understand how it affects your investment . I even head a financial planner the other night come up with a cute (but incorrect) phrase, “Your IRA is simply and IOU to the IRS.” While it is true you owe taxes on your traditional IRA and 401k only a portion of it will go to the IRS, less than 40% even with the worst planning. How much goes to the IRS depends on how well you plan, see my next article that talks about reducing taxes through planning.   In the meantime what you owe the IRS shoul
Read more

Are Collectibles a good investment?

I am often asked this question, or put in a position of having to answer this question by people that tell me their collections are part of their investment strategy or estate plan. For everyone that has ever asked me the question or suggested to me that their “collections” were part of their investment strategy the answer was an unequivocal no. Kind of like any luxury, if you have to ask the question you can’t afford it. If you have to ask if your collection should be considered part of you financial plan, you probably don’t understand enough about investing in collectibles to make it a good investment for you. Yes there are rare exceptions of collections that may be considered and investment. The operative word is rare! We will get into what collectibles could be considered an investment shortly, along with some of the pros and cons of that type investment. But investment grade collectibles are not what most people have in their collections at home. So I want to start by addres
Read more