How to Avoid Eating Cat Food in Retirement

                In his 1937 book “Think and Grow Rich,” Napoleon Hill identifies the 6 basic fears we all share.  The first on his list is the fear of poverty.  (Number six is death.  Somehow public speaking didn’t make the list.)  Unfortunately, far too often we see people in their golden years struggling to scrape by.  We all know someone retired and trying to live on a fixed income, often just Social Security.  For me personally, I can’t even count on that.  According to the latest government projections, when I turn 65 in the year 2040, Social Security will have already been bankrupt for seven years.  The same projections have Medicare going bust seven years before that, in 2026, so here’s hoping Obamacare works out.

                Most of us rely on our earned income as the path to fortune.  We work hard, try to get promoted, climb that corporate ladder to the top.  As we move up, our incomes should rise also.  Frequently they do, if not as much as we might like.  So why do we still see so many people with relatively successful careers end up struggling in retirement?

                We can always count on the NY Times for all the depressing stats, but the bottom line is, the cost of living is zooming along, while wage earners are stalled out on the start line.  Almost none of us are going to get rich from our paychecks alone.  Throw in a little bit of keeping up with the Joneses, and you end up with 36% of working Americans having saved basically nothing for retirement at all.  While this may be good news to the cat food industry, it doesn’t bode well for everyone else.  However, that doesn’t mean you can’t still build a decent nest egg and retire in comfort.            

The good news is, while wages have been stagnant over the last few decades, stocks just hit another record high.  Historically, stocks have gone up by 10% to 12% annually, depending on whose numbers you believe.  Do you get an annual 12% raise?  I sure wish I did.  Your stock investments will.  Sure, some years will be better than others, and some might even see your investments go down in value.  Consider the bad years a chance to buy stocks “on sale”.  In the long run, your stocks will end up substantially more valuable than they were when you bought them.  To paraphrase my old economics professor, your investments will appreciate at a much greater rate than your labor will.  Use that to your advantage.  The key is to just get started.  Happy investing.

The Most Powerful Force In the Universe

Albert Einstein, famous for being one of the sharper tools in humanity's shed, was once asked what the most powerful force in the universe was.  He replied, "Compound interest."  He had a point.  Compounding is without a doubt a critical ally in the never-ending fight to ensure your retirement runs out before your money does.  But exactly how powerful is it?  And how fast can compounding grow your nest egg?  There's a quick and simple thumbrule to figure it out: the Rule of 72.

It works like this.  Just divide your interest rate (or growth rate, whatever you have that’s compounding) into 72, and the answer is the number of years it will take for your money to double.  Simple.  So if you have an 8% rate, your money will double in about 9 years.  At 3%, about 24 years.  It’s not exact, just a thumbrule.  The math falls apart at higher rates, but it’s fairly accurate at reasonable rates you might actually have.

Wikipedia has a pretty good explanation of the math that makes it work, here, and there’s also this video on Investopedia that explains it fairly well.  This shortcut has been around for centuries.  With a little luck and some really good planning, your savings can be, too.  Remember, it’s not timing the market that counts, but time IN the market.  Happy investing.