Retirement plan decisions made easy
Drill Down: Savings Helps Your Retirement
Any savings that you do helps your retirement, whether it is inside your 401k or not. You may be surprised to see the way in which it helps. The chart below shows a typical worker’s earnings profile over a lifetime.
With no savings, the person retires and income immediately falls to zero. That’s the dog-food-in-retirement option. Not fancy designer dog food, either, but the basic Wal-Mart cheap stuff.
With a five percent savings rate over your lifetime, retirement is a lot easier. If this person could save ten percent instead of five, he won’t even have to cut back on spending during retirement. But notice something else. The higher savings rate forces you to live on a little less while you are working. This makes the transition into retirement a little easier because you have already learned to live on less spending by eating at home more often, taking less expensive vacations, or driving your car another year or two before buying a new one.
Despite what the chart shows, however, you cannot simply take a ten percent savings rate as an automatic ticket to financial security. Your results depend on when you start saving, how you invest your assets, and how the financial markets behave. You need to have a more detailed plan that applies to your own particular circumstances. In the meantime, you won’t be too far off if you save ten percent of your income and invest it along the suggestions in Chapter 3 or Chapter 4.
Return to Lesson 9 ("Your 401k, Your Other Assets, and Your Life")
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Lesson 1: What the Heck is a 401k, and What’s So Great About It?
Lesson 2: Contributions to Your 401k
Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
» Lesson 9: Your 401k, Your Other Assets, and Your Life
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