It's becoming more and more evident that your retirement income
will ultimately become your sole responsibility to fund. And
the longer it takes for you to realize that, the worse off your
lifestyle will be in your golden years.
The current debt ceiling crisis and deficit debate going on in Washington should be a huge wake-up call that, as we go forward into the future, your retirement lifestyle will depend largely on your actions today. This generation of retirees will very likely not have the luxury of blindly relying on the entitlement programs that your parents and grandparents now enjoy.
The reality is that the Social Security and Medicare plan for seniors is on a dangerous unsustainable path, and the retiring baby boomer generation that is eligible for these benefits are putting a massive strain on funding.
Both sides of the political aisle recognize this -- even the left wing democrats understand that this can’t be ignored. That's why, bringing it back to the current crisis, you see that all the debt ceiling plans currently being floated around Washington include mandatory spending cuts to Social Security, Medicare and Medicaid.
While it’s too late (or at least politically unfeasible) to strip these benefits from current beneficiaries and those who will be reaching retirement age in the near term, the writing is on the wall: Going forward, future generations will most likely not see the same level of benefits or, quite possibly, a cessation of these benefits and entitlements.
The younger you are and further away from retirement, the more quickly you need to recognize this shift in how the government may or may not be able to help you in your older years.
The point here is that you must take control of planning for your future now. Taking a disciplined approach and mapping out a plan now will reap you financial independence without worry or need of government support, which is no longer a foregone conclusion.
As I reached the milestone age of 40 this year (yes, time is flying by as it seemed like yesterday I was a young care-free college student), it’s become very apparent that I am the only one that will dictate my retirement and the lifestyle that I want to enjoy when I'm done working.
Here are the two keys to really WIN THE FUTURE and unlock a wealthy retirement and live the life you want to live ...
Key #1: GET RID OF ALL YOUR DEBT AS FAST AS YOU CAN
Debt is the biggest drag to a balance sheet. Just look at what it does on a macro level; think Greece, Ireland, Italy, Portugal, and Spain. Look at the U.S. Government and what is going on right now in Washington. The only difference between the Eurozone sovereign debt issues and the U.S. is the ability for America to print more money and kick the can further down the road. That may work for now, but for how long?
Unlike sovereign governments and Central banks, you as an individual can’t print money or enjoy taxing authority to get out from under mounting debt.
The key to building wealth for the future is to eliminate your debt. Most Americans have a mortgage on their homes, for instance. Paying it off quickly is the best remedy to jump-start wealth building. The quicker you can eliminate the mortgage payment, the faster you can build and fund your financial portfolio.
If your mortgage payment is $1,500 month, think about how fast your retirement portfolio would grow if you could deposit and invest that money to your investment account rather than send it to a mortgage company. That’s $18,000 a year just from the mortgage payment alone.
But before you can build this wealth, the mortgage needs to be retired. Mortgage Rates are at historic lows. The 30 year fixed rate is 4.5%, but a 15 year fixed rate is just under 4.0%! Shedding years off your term will get you on your way to putting that same amount towards building your wealth. The secret is to not get trapped into 30 years of mortgage debt.
Credit Card debt is another big one. Interest Rates on revolving debt balances can easily top 20% APR, with the average rate around 16.4% APR. Credit Cards are indeed a convenient way to fund your transactions, but you need to get into the habit and mindset that it’s temporary and a substitute for cash with the full intention of paying off the balance in full within the interest free grace period.
This debt instrument is the easiest way to dig yourself into a hole. Many consumers fall into this trap by choice, lack of control, or flat out necessity. If you want to build wealth, carrying credit card balances greater than 30 days on a regular and consistent basis is a red flag.
If you have significant credit card debt, this is your first priority to tackle. If you have the ability to roll all your debt into a low rate home equity line of credit (HELOC), that is a no brainer. If you can’t, then focus on the credit card debt first, then tackle the accelerated mortgage reduction plan.
Wealth building and financial security for the future means destroying debt.
KEY #2: SAVE, SAVE, and INVEST
Any time you have an opportunity to invest, you need to take full advantage.
If you are an employee and have the opportunity to contribute to a 401k retirement account, you must participate. Even if money is tight, investing 6% to 10% of your paycheck must be done, even if it means cutting out some of your favorite discretionary splurges to fund the account.
Many companies will even match a portion of your contribution, which is a huge boost. Also, current tax law allows your contribution to be deducted from your gross pay before taxes, much like your health care. That is another big break, and the contribution amount will be greater than the amount by which your paycheck is reduced on a cash basis.
If you don’t have access to a 401k, you can contribute to an Individual Retirement Account (IRA), which is also currently tax deductible in most cases. You can contribute up to $5,000 per year, $6,000 if you’re fifty or older as a catch up clause. You can open a retirement account very easily and invest in an endless amount of securities that suit your risk profile.
If you’re self employed, you can sock away up to a maximum of $49,000 per year, which is also tax advantaged.
It is important to diversify your investments, and IFII has many services and educational products that teach proper money management and sector/product diversification. The point here is that you need to consistently fund an investment account that will grow and mature for the future.
Aside from the retirement investment shelters I've already mentioned, which should be the first priority, opening up a savings or money market account is important as well. If you can add excess funds into this account, it too will grow simply by your deposits. I have been doing this for years with very small individual deposits, and the account has grown to five figures without feeling any significant pinch.
The important point here is that you must get into a habit of saving money for the future, even if it means simply opening up a savings account at your local neighborhood bank.
If you can eliminate debt quickly and focus on a plan to save and invest, these simple keys will unlock the golden door to empowering your retirement and controlling the lifestyle you want to live.
If you’re counting on a government key as your retirement plan, you may not be too happy what door that will open down the road.
The current debt ceiling crisis and deficit debate going on in Washington should be a huge wake-up call that, as we go forward into the future, your retirement lifestyle will depend largely on your actions today. This generation of retirees will very likely not have the luxury of blindly relying on the entitlement programs that your parents and grandparents now enjoy.
The reality is that the Social Security and Medicare plan for seniors is on a dangerous unsustainable path, and the retiring baby boomer generation that is eligible for these benefits are putting a massive strain on funding.
Both sides of the political aisle recognize this -- even the left wing democrats understand that this can’t be ignored. That's why, bringing it back to the current crisis, you see that all the debt ceiling plans currently being floated around Washington include mandatory spending cuts to Social Security, Medicare and Medicaid.
While it’s too late (or at least politically unfeasible) to strip these benefits from current beneficiaries and those who will be reaching retirement age in the near term, the writing is on the wall: Going forward, future generations will most likely not see the same level of benefits or, quite possibly, a cessation of these benefits and entitlements.
The younger you are and further away from retirement, the more quickly you need to recognize this shift in how the government may or may not be able to help you in your older years.
The point here is that you must take control of planning for your future now. Taking a disciplined approach and mapping out a plan now will reap you financial independence without worry or need of government support, which is no longer a foregone conclusion.
As I reached the milestone age of 40 this year (yes, time is flying by as it seemed like yesterday I was a young care-free college student), it’s become very apparent that I am the only one that will dictate my retirement and the lifestyle that I want to enjoy when I'm done working.
Here are the two keys to really WIN THE FUTURE and unlock a wealthy retirement and live the life you want to live ...
Key #1: GET RID OF ALL YOUR DEBT AS FAST AS YOU CAN
Debt is the biggest drag to a balance sheet. Just look at what it does on a macro level; think Greece, Ireland, Italy, Portugal, and Spain. Look at the U.S. Government and what is going on right now in Washington. The only difference between the Eurozone sovereign debt issues and the U.S. is the ability for America to print more money and kick the can further down the road. That may work for now, but for how long?
Unlike sovereign governments and Central banks, you as an individual can’t print money or enjoy taxing authority to get out from under mounting debt.
The key to building wealth for the future is to eliminate your debt. Most Americans have a mortgage on their homes, for instance. Paying it off quickly is the best remedy to jump-start wealth building. The quicker you can eliminate the mortgage payment, the faster you can build and fund your financial portfolio.
If your mortgage payment is $1,500 month, think about how fast your retirement portfolio would grow if you could deposit and invest that money to your investment account rather than send it to a mortgage company. That’s $18,000 a year just from the mortgage payment alone.
But before you can build this wealth, the mortgage needs to be retired. Mortgage Rates are at historic lows. The 30 year fixed rate is 4.5%, but a 15 year fixed rate is just under 4.0%! Shedding years off your term will get you on your way to putting that same amount towards building your wealth. The secret is to not get trapped into 30 years of mortgage debt.
Credit Card debt is another big one. Interest Rates on revolving debt balances can easily top 20% APR, with the average rate around 16.4% APR. Credit Cards are indeed a convenient way to fund your transactions, but you need to get into the habit and mindset that it’s temporary and a substitute for cash with the full intention of paying off the balance in full within the interest free grace period.
This debt instrument is the easiest way to dig yourself into a hole. Many consumers fall into this trap by choice, lack of control, or flat out necessity. If you want to build wealth, carrying credit card balances greater than 30 days on a regular and consistent basis is a red flag.
If you have significant credit card debt, this is your first priority to tackle. If you have the ability to roll all your debt into a low rate home equity line of credit (HELOC), that is a no brainer. If you can’t, then focus on the credit card debt first, then tackle the accelerated mortgage reduction plan.
Wealth building and financial security for the future means destroying debt.
KEY #2: SAVE, SAVE, and INVEST
Any time you have an opportunity to invest, you need to take full advantage.
If you are an employee and have the opportunity to contribute to a 401k retirement account, you must participate. Even if money is tight, investing 6% to 10% of your paycheck must be done, even if it means cutting out some of your favorite discretionary splurges to fund the account.
Many companies will even match a portion of your contribution, which is a huge boost. Also, current tax law allows your contribution to be deducted from your gross pay before taxes, much like your health care. That is another big break, and the contribution amount will be greater than the amount by which your paycheck is reduced on a cash basis.
If you don’t have access to a 401k, you can contribute to an Individual Retirement Account (IRA), which is also currently tax deductible in most cases. You can contribute up to $5,000 per year, $6,000 if you’re fifty or older as a catch up clause. You can open a retirement account very easily and invest in an endless amount of securities that suit your risk profile.
If you’re self employed, you can sock away up to a maximum of $49,000 per year, which is also tax advantaged.
It is important to diversify your investments, and IFII has many services and educational products that teach proper money management and sector/product diversification. The point here is that you need to consistently fund an investment account that will grow and mature for the future.
Aside from the retirement investment shelters I've already mentioned, which should be the first priority, opening up a savings or money market account is important as well. If you can add excess funds into this account, it too will grow simply by your deposits. I have been doing this for years with very small individual deposits, and the account has grown to five figures without feeling any significant pinch.
The important point here is that you must get into a habit of saving money for the future, even if it means simply opening up a savings account at your local neighborhood bank.
If you can eliminate debt quickly and focus on a plan to save and invest, these simple keys will unlock the golden door to empowering your retirement and controlling the lifestyle you want to live.
If you’re counting on a government key as your retirement plan, you may not be too happy what door that will open down the road.
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