save for retirement

I received my annual benefits statement in the mail yesterday from the Social Security Administration. At my present rate of contribution, if I were to retire at age 62, I’d only receive a little over $800 a month. At age 66, I’d get about $1,150. I figure I’ll need three times that much. I’m counting on my 401(k) to provide part of it, but I obviously need a third leg on the stool: Passive income. This goal is about to move up my list of priorities, along with get a financial advisor.

Last night I attended a seminar conducted by Primerica (A division of Citicorp). They talked about The Rule of 72 and how it applies to interest rates. If you divide 72 by the rate of interest you get on your savings or investment, the result is the number of years it will take for your capital to double. For example, if you save $200 at 3%, it will double to $400 in 18 years. At 6%, it doubles in 12 years. But at 12% it doubles in just six years. Their point was that the only consistent way to achieve 12% year in and year out is through mutual funds. In 18 years, the same $200 invested at 3% would be worth $1,600 if it earned 12%. Simple math, but how many people stick with it? I did in the 1980s and 90s and it worked, but divorce, repatriation, and an unprofitable attempt at entrepreneurship ate up all the gains. Looks like I need to get a broker again soon if I plan to retire (once again) in 10-11 years.

I retired early, took my pensions (three of them), moved to Las Vegas, started a little business, and virtually dropped off the face of the earth for a while. Now, six years later at age 54, I’m back at work, pretty much broke, and thinking once more of retirement. Fact is, I really didn’t think I would live this long. I took on life as a sprint and it has turned out to be a marathon. Soooooo… my first step is getting a 401(k) set up through my employer who has a matching plan. I’ll be socking away 10% of my gross; the company will match the first 4% and I’ll be fully vested in five years (age 59). I ran an analysis that shows my savings will amount to about $115,000 by the time I turn 65 if the investments earn 5% annually and my salary increases regularly. Not bad, but not nearly enough. That, plus Social Security, will give me barely enough to live on, and I intend to retire well. It’s time to start formulating Plan B.