Would you like to have financial freedom today? Do you look forward to “retirement?” Are you already retired? This is an exciting area of financial planning because people want to plan for their retirement. They can see what the future might look like, and they’re willing to set aside money today to make their dreams come true. Through the magic of compound interest, the money grows geometrically.
When the money is inside of a qualified retirement plan, we refer to that money as qualified money. Generally they are before tax dollars, growing tax deferred and coming out to us as ordinary income at a later date.
The Roth IRA is an exception to that, as a hybrid. The Roth account is set up using after tax dollars, that grow tax deferred and come out tax-free.
- How old are you now?
- How many years do you have until you retire?
- How much money have you already set aside?
- How much are you putting away annually?
- What rate are you growing the account, or what rate can you assume?
- How much money do you think you need to live on at retirement?
What lump sum, when invested, will generate the annual income you need to live on?
$1,000,000 @ 5% = $50,000 a year to live on.
Grandma always said “Spend the golden eggs, don’t slaughter the goose.”
Planning for retirement and financial independence is a great motivator for people wanting to play the “Money Game” well. The thought of financial independence, and being able to retire at a young age is very appealing.
The reality is that retirement isn’t a place you arrive at, as much as it’s a doorway you go through. We may still have many years of life ahead when we retire, and that uncertainty of time may leave us anxious. The fear of not having money is real. Your investment portfolio still needs to be growing during retirement, especially if you have 30 years of life left! There is a fine balance between investing wisely, and being aware of taxation and inflation to see real growth in a portfolio.
Grandpa Shaw said, “You spend money seven days a week, you need to learn to make it seven days a week too. There are only two things that make money: You at work, or your money at work. If you don’t want to work harder, then you need to get your money to work for you!” I give thanks for the wisdom passed down from my grandparents and parents. It’s not enough to go to school to learn to make money; you need to learn what to do with it once you get it too.