21 Sep 22.5 Years of Vacation?
Do you love traveling for your vacation? When going to a new place, you pull out maps, read the travel guides and you ask well-travelled friends for tips. For vacations, we tend to plan and save. Well, maybe it’s time to think of our retirement as a vacation – a long vacation of about 22.5 years.
On average, babies born this year will live until they are nearly 90 years of age. If you divide 90 by four, you get 22.5 – roughly the age most people graduate from college. Double that number and you get to 45, mid-life when most adults have had all the children they intend to have. You own a house, have two or three cars, are paying for braces, taking family vacations and are staring at college tuitions. You also may own your own business and the debts that go with it.
Now, add another 22.5 and you’re 66.5 years of age – just about ready to retire. Kids are largely out of the house, the mortgage is nearly paid off, health issues are beginning to show up and you’re about to enter the last quarter of your life. The question right now is: Did you plan for your retirement the same way you planned for all your other vacations?
Let’s roll back to the first quarter of life. One of the best gifts a parent can give to their children is the value of independence – socially and financially. We all want our children to feel secure when they leave the nest – a full time job, solid friends and a sense of purpose. If you have encouraged your kids to start saving early in life, they may actually be on their way to financial security. They’re going to need it.
In the second quarter of life, from age 22.5 to age 45, a lot is bound to happen. You start to acquire things – cars, homes, furnishings, toys. You also may marry – two incomes from which to draw! From an earnings standpoint, you likely will see the greatest rise in compensation in this phase of life if you are ambitious and acquiring valued work skills. It’s the perfect time to save – a lot – and be well insured against disaster. Remember, you’re going on vacation for 22.5 years. And don’t wait for the third quarter of life to start saving. You’ll have to severely cut your living expenses if you expect to catch up from 45 to 66.5 years of age.
Just about every financial planner will advise participating in your employer-sponsored retirement plan at a level to earn the maximum employer match. If you want to have fewer worries for that long vacation (ages 66.5 to 90), you’ll want to save even more. Making good investments allows your savings to grow while you sleep, work and play.
Savings doesn’t mean giving up everything else – just making choices. Do you shop at Goodwill or Macy’s? Do you buy new cars or used vehicles? Is your house likely to appreciate a little or a lot?
Sure we like to treat ourselves to nice, new things but being mindful of what and how much we’re buying directly translates to how much we can actually put into savings.
Now here’s the bugger – INFLATION! In the last decade, inflation has averaged about 2.3 percent. That means something that costs $100 today will cost $158 in twenty years. If you want the lifestyle you enjoy today to continue through retirement, you need to stay ahead of the inflation factor.
From 2005 through 2014, the Standard & Poor Index funds grew by an average of 7.2%, well ahead of inflation for those with investments. The point here is that you must have money invested to stay ahead.
The other factor to consider are taxes. There will be growing political pressure to increase government benefits to support all those who did not or could not save enough for their retirement and health care. The most likely place to find that money will be to raise taxes – income taxes on everyone including retirees. We all assume our income will be in a lower tax bracket when we retire. That’s not a bet worth making. The best bet? Start saving more. Bon voyage!