Don't Fail to Plan

Don't Fail to Plan

I know a couple who are extremely close to their retirement. David and Marsha are 52 and 56, respectively. Out of curiosity, I asked them if they wouldn’t mind sharing with me how they planned for their retirement. I nearly spit out my tea when I heard their responses.

The red flag in my brain went up immediately when they misunderstood my question. Instead of delving into a conversation about IRAs, bonds, stocks, or even CDs, they started talking about cruises. They planned on taking a Caribbean cruise as soon as David turned in his resignation, they said jokingly. They laughed and explained that they had “nearly $100,000 saved up,” so that’s not likely. They didn’t think that with that sort of money investing was really necessary. I wasn't sure how to break the news to them.

60 Is The New 40

When someone retires at age 60, they statistically have an additional 20 to 25 years to live. $100,000 sounds like a lot of money, but spread over 20 years equates to just $5,000 annually. They're going to have to make that money work for them in order to be able to retire at their planned ages, but I'm afraid it's not likely they'll realize that until those zeros start disappearing.

How can you prevent this from happening to you? First of all, I’m assuming that since you’re on this site, you’re not opposed to investing. If you are, welcome to a new way of thinking :-).

Open a Retirement Plan Today

I don’t care if you’re 19 or 59. When it comes to retirement planning, the sooner you start the better -- but better late than never. As we pointed out yesterday, passing on a tax-advantaged account is basically throwing money away.

You can invest in an employer-sponsored retirement plan, or you can go with an individual plan if your employer doesn’t offer one. If you’re not sure if your employer offers a retirement plan, find out soon. The difference between now and later with retirement plans can quickly add up.

Regardless of whether you decide to go with an employer-sponsored or an individual plan, do your best to max that account out. Remember, you have to make enough money now to last you an additional 20 to 25 years after you stop working if you want to maintain your current lifestyle or something similar.

A shocking percentage of Americans over 65 have an income at or bordering on the poverty level. Is that the income you imagine for your “Golden Years?” If not, start saving and investing today.

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retirebyforty's picture

retirebyforty wrote:

Thu, 01/20/2011 - 21:03 Comment #: 1

Yikes! Maybe they are planning to work at Walmart??
100k is definitely not enough for 20-30 years.

Kevin's picture

Kevin wrote:

Fri, 01/21/2011 - 00:00 Comment #: 2

Great call to action Jessica! Its never too early to start planning and saving, but sometimes it can be too late. This is a message that cannot be over-emphasized enough, especially based on the useful data in your post.

Money Reasons's picture

Money Reasons wrote:

Fri, 01/21/2011 - 00:43 Comment #: 3

Wow $100,000 isn't a lot of money for 25 or 30 years!

I remember watching "The Craft", and one of the girls in the movie got $100,000 from the life insurance from her dad dying. Both the girl and the mom acted like it was a few million dollars. Funny how we perceive what is a lot of money and what isn't...

Hopefully, you set them straight again.

Shaun's picture

Shaun wrote:

Fri, 01/21/2011 - 01:24 Comment #: 4

That cruise is going to eat up a fair bit of coin!

We are pretty lucky over here in Australia as we have enforced retirement plans (superannuation), that can't be touched until age 65 minimum. These still aren't a guaranteed solution for retirement as there are a lot of people that have ongoing costs like mortgages or rent. The recent stock market crash also meant that a lot of people had to put off retirement!

I hate long term planning, but it's pretty scary when people don't take a small amount of time to think about their future.

Good reminder Jessica

Daddy Paul's picture

Daddy Paul wrote:

Fri, 01/21/2011 - 01:27 Comment #: 5

This post is a great call to action. Invest soon, invest well and invest often!

Jessica Schmeidler's picture

Jessica Schmeidler wrote:

Fri, 01/21/2011 - 06:34 Comment #: 6

@Retirebyforty: Hey now. There's nothing wrong with Wal-Mart. ;) (I'm kidding. I know what you were getting at. I'm just giving you a hard time.)

@Kevin: I'm glad you liked the post. It always seems to be the seemingly obvious that gets taken for granted and looked over. Unless you equate it out over such a long period of time, $100,000 does sound like a pretty nice amount to be sitting around in your account.

@Money Reasons: I used to really like that movie! :) I wouldn't mind getting $100,000 handed to me. I would make sure it grew some legs and arms, and carried me a little further with some interest, but I'd take it. You bring up a good point about life insurance though--have some! It makes paying for expenses rather difficult when you don't (trust me... I know first hand).

@Shaun: Long-term planning is a MUST. I love the planning part, just not so much the follow-through. Sometimes it's hard not to let my money play instead of work. (Doesn't a cruise sound nice?)

@Daddy Paul: " Invest soon, invest well, and invest often!" Cheers to that! :)

MoneyCone's picture

MoneyCone wrote:

Sat, 01/22/2011 - 02:21 Comment #: 7

That is scary! What were they thinking! There is nothing called 'too early to save for retirement'!

Jessica Schmeidler's picture

Jessica Schmeidler wrote:

Sat, 01/22/2011 - 03:59 Comment #: 8

I don't know, but I'm glad I changed their names! They might be really ticked at me... LOL!

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Getting Traction | Money Reasons wrote:

Sun, 01/23/2011 - 08:16 Comment #: 9

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20 Cents from January 2011 | Balance Junkie's picture

20 Cents from January 2011 | Balance Junkie wrote:

Wed, 02/02/2011 - 10:41 Comment #: 10

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Black Coffee: Miracle Whip, Grokking, and My Contest Winner wrote:

Sat, 02/12/2011 - 19:56 Comment #: 11

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