Debt-Free Forever by Gail Vaz-Oxlade (the beginning after the end read novel .TXT) 📕

a “decent” return. Hunting down an elephant-sized return won’t be half so important if you have time and the magic of compounding return doing most of the work for you.

Sock away $100 a month—or $1,200 a year—in a retirement plan and earn 5% on your money on average over 40 years and you’ll have saved $48,000, on which you will have earned about $133,000 in compounded return, for a total of almost $181,000. Wait until you’re 40 to start, put away the same $1,200 a year at 5% and you’ll have just under $67,000 to work with. If the 40-year-old wanted to have what the 20-year-old has, (s)he’d have to save $3,200 a year instead of just $1,200 a year.

Starting early is best. But no matter where you are now, getting started will get you closer to where you want to be than sitting on your thumbs!

How Much Is Enough?

If you’re spending $60,000 a year now (net!), in all likelihood you’re going to need a little more than $20,000 a year to make ends meet. Some people arbitrarily pick a goal for how much money they think they’ll need. That’s where the Magic Million came from. It was a dart thrown in the dark. And it’s no more true for the guy who is currently living on $250,000 a year than for the guy living on $25,000. Guessing is fine if you’re 20 and just starting out. After all, life is going to throw you a huge number of curveballs before you actually get to shake off the harness. But if you’re in your 50s or 60s, it’s time to stop guesstimating and time to start doing some groundwork. The last thing you want to do is get to retirement only to find out that you have just enough money to last until next Tuesday.

Most people don’t have to come up with all the money they’ll need from their own savings. About half of us have access to a company pension plan. (Sad to say, not everyone takes full advantage of those company pension plans.)

GAIL’S TIPS

I was speaking at a corporate meeting not Long ago, and I asked how many people were taking advantage of the corporate retirement savings-matching program offered by the company. (If an employee contributed 3% of his or her salary to the pension plan, the company would match the contribution up to 3%, doubling the contribution.) Less than half of the people in the room put up their hands. OMG! Your company wants to GIVE you money and you can’t get it together to take the gift! If your employer has a savings-matching program and you’re not taking advantage of it, you’re stupid! It’s Like blowing off free money. Clearly you don’t deserve a raise.

I am constantly amazed at the number of people who don’t know how their company pension plan works. If you don’t know, make an appointment this week with your Human Resources department to find out. Whatever you will get from your company pension plan reduces the amount you’ll have to save on your own, so this is a big consideration.

How much you end up receiving through government retirement benefits will also have an impact on how much you’ll need to save. While it may not be much, it’s better than a kick in the teeth. Find out what you can expect to receive and plan accordingly. Contact Service Canada (servicecanada.gc.ca) for more information.

If you’re going to be funding your retirement all by your lonesome, then a buck ninety-two probably won’t go far enough. The most common rule of thumb thrown around in the media and by the retirement specialists is that you’ll need about 70% of your pre-retirement income to live comfortably when you finally check out with your gold watch.

Keep in mind that you’ll be retired for 20 years or more so that your needs will change because inflation will make things more expensive. Let’s say you decided you could live on $20,000 in today’s dollars during retirement. If inflation averages 1.5% a year, you would have to spend just over $36,000 a year in 20 years to buy the same stuff you’re spending $20,000 on today.

Don’t get so caught up in the rule-of-thumb calculations that you throw up your arms and say, “I’ll never be able to swing that, so I won’t even bother to try.” The Stats Man has found that people who earned $70,000 at retirement use only about 45% of their pre-retirement income to live during retirement. Those who earned between $40,000 and $50,000 end up retiring on just 59% of their pre-retirement income. And less than 20% of people with a pre-retirement income of $40,000+ end up living on 75% or more of their pre-retirement income.

Calculating how much will be enough for you means looking over your budget and deciding which expenses will increase in retirement, which will go down, and which will disappear completely. This is an exercise for people who are five years or so from retirement. For anyone younger, a web-based retirement calculator or an experienced and smart adviser can help you decide how much you should be setting aside each month.

How Greedy Are You?

Once you decide on your retirement savings goal, you have to figure out how you’re going to invest that money so it will grow to meet your expectations. Everything has some risk attached. Being a fraidy-cat and doing nothing with your money means leaving it to wilt under the pressure of inflation. Expecting “big returns” means taking more risk with your money.

“How greedy are you?” is one of those simple questions that has a ton of implications. If you’re content to hold an investment paying you a 2% return and can stand the scorn of all your friends and relatives at your naïveté, your lack of ambition, or your sheer stupidity, then you’d be pretty low on the Greedy Scale. If you’re insisting on an investment that will turn your $1,000 into the Magic Million