For many people thinking about retirement, their biggest fear is running out of money while they are still alive. I have been working with folks to overcome this fear for over 30 years and here is what I have learned in as simple of terms as I can give you.
First, the most important thing you can do is to learn to save. If you can’t save money then you won’t have anything to invest for the future. Saving is the most important component of being able to afford your lifestyle for the rest of your life. If you don’t save enough, no amount of investing savvy is going to make up for your lack of saving.
Second, time is on your side. The second most important variable is the compounding of money over time. The money that money makes - makes more money. A 30 year old investing $523 at the beginning of every month in a pre-tax account earning 8% annually would accumulate $1 million by age 60 assuming the monthly investment is increased 3% each year.
Third, you are going to live longer than you think. Go to www.livingto100.com and use the life expectancy calculator to determine how long you will need money to fund your lifestyle. Remember that inflation running at 4% per year will double the cost of your lifestyle every 18 years. Over the next 36 years of your retirement from age 60 to 96, everything could cost 4 times as much. How do you turn that $1 million that you accumulated into an ever increasing lifetime income stream that you cannot outlive?
A well-diversified portfolio composed of the world’s greatest companies could help to provide an ever increasing stream of income due to dividends and price appreciation. 36 years ago in 1980 the S&P 500 stocks paid an annual dividend of $6.44. Today, 36 years later, the annual dividend is now $44.08. That’s an increase in your income of 6 times. The price appreciation would have taken your principal from $135.76 to $2043.94 or an increase of 15 times. These examples are historical and for illustrative purposes and are not intended to predict any future returns. Yet, no other investment exists that can match the potential returns of the great companies of the world. We are happy to meet with you to discuss your personal situation and how you might be able to harness the power of a diversified portfolio. Call now for your free one-hour consultation.