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Senior Retirement Tips :: Money Management Advice
Money Management Advice: Money Management for Retirement and Other Advice
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Money management advice is a big part of planning for your retirement. When you attended high school or college, did you take a course on personal money management?
In fact, did your school even offer one? Probably not, despite the fact that we live in a nation where financial security is at the heart of everyone's lifestyles.
If you missed out on critical money management advice, it’s it's time to shift gears and start educating yourself on how to better manage your personal finances in preparation for retirement. Keep reading to learn how.
The Basics of Accumulating Wealth
Understanding how to accumulate wealth also is crucial to retiring comfortably. Most people retire poor, why? Because many Americans are basically taught how to save money, not how to invest it.
But, accumulating enough money for your retirement is not as difficult as most people believe. First you need to understand some of the following basic tenets:
- How to calculate the amount of money you'll need in the future
- The importance of purchasing power
- The value of the Rule of 72 in your planning
How can you find out the future value of money? One way is the Rule of 72. This tells you how long it takes for money to double in value. For example, $1 at 3% interest will double in 24 years (72 divided by 3 = 24); $1 at 12% interest will double in 6 years (72 divided by 12 = 6).
If you double the interest (6% vs. 3%), the return over 48 years actually increases four times, not two times ($16 vs. $4). However, if you double 6% (to receive 12% interest) over 48 years, the investment increases 16 times ($256 vs. $16). The investment return on interest rates greater than 12% is outstanding.
Calculating How Much You’ll Need for Retirement
One easy way to determine how much money you will need is to calculate how much money you must earn to have the same purchasing power as your current family income.
If your current family income is $45,000, then in 12 years (assume 6% inflation) you'll need $90,000 to have the same purchasing power as $45,000 had. Current salary increases have averaged about 3% to 5%.
If this trend continues, your family income will range from $64,160 (3% average) to $80,813 (5% average) in 12 years. If inflation averages 6%, then your family's purchasing power will decrease by 11% to 30%.
Understanding Inflation
If you retire at age 66, you will need at least 50% to 60% of your prior income to maintain a comparable living standard, and 50% of $360,000 is $180,000.
If inflation continues at 6%, you'll need $360,000 when you reach age 78 to have the same purchasing power as $180,000 had at age 66.
Inflation can have devastating impact inflation on the purchasing power of your money, which is why you have to save, bank and earn compounding interest. Now, that’s strong money management advice.
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SeniorRetireTips.com :: Money Management Advice