Financial Focus: Don't underestimate your ability to build retirement savings
Don't underestimate your ability to build retirement savings
Many of your fellow Americans just don't think they are capable of building a reasonable amount of savings for their retirement years. Should you be equally gloomy? Not if you save and invest early and often.
Just how pessimistic are people about building their net worth? Consider these findings from a recent survey sponsored by the Consumer Federation of America and the Financial Planning Association:
* Only 26 percent of the adults surveyed think they could accumulate $200,000 in net worth in their lifetime.
* A whopping 21 percent of those surveyed said winning the lottery would be the most practical strategy to accumulate several hundred thousand dollars.
In looking at these figures, two things jump out: The first group may be overly pessimistic--and the second group is totally unrealistic. In fact, a person's chances of winning huge in the Powerball are about 1 in 120 million, give or take a few hundred thousand. So, if you are doubtful that you'll accumulate enough money to retire, and you can't count on the lottery, what can you do to improve your savings outlook? Here are a few suggestions:
* Set some goals. You will find it easier to invest for your retirement if you know how much money you will need to reach your goals. Try to visualize the type of retirement lifestyle you'll want. Will you travel? Volunteer? Open your own small business? A qualified financial professional can help you set a general "price tag" on your goals and show you about how much you will need to save each year--and what sort of investment return you will need to achieve--to meet your objectives.
* Put time on your side. The earlier you start saving and investing, the better your chances of building the resources you'll need to enjoy a comfortable retirement. You might be surprised at how much you can accumulate over time. For example, if you can afford to put away $100 a month in a tax-deferred investment (such as a traditional IRA) that earned a hypothetical 7 percent a year, you would accumulate more than $121,000 after 30 years. Even after you pay taxes on your withdrawals, you'll still have a sizable sum.
* Take advantage of your employer's retirement plan. If your employer offers a 401(k) or other tax-advantaged retirement plan, take full advantage of it. Every time you get a raise, try to increase your annual contributions. At the very minimum, contribute enough to earn your employer's match, if one is offered.
* Avoid heavy debt burdens. Debt is one of the biggest threats to your ability to accumulate the money you'll need for retirement. Every dollar you use to pay off a high-interest credit card is a dollar that could be used for investing. Of course, it's not easy for many of us to make ends meet these days, but do whatever you can to live within your means and avoid racking up a huge debt load that will take you years to pay off.
By following these suggestions, you should gain confidence, over time, in your ability to increase your net worth to levels that once seemed unimaginable to you. And you can save money on those lottery tickets, too.
This article was submitted by local financial representatives of Edward Jones.