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I have some good news and some bad news. The good news is that if you start saving for retirement at a young age, you are likely to save $1 million or more when you retire. The bad news is that it doesn’t guarantee you a rich life.
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This is a big deal. If your goal is to save one million dollars when you retire and think that it will make you rich, you will be sad and disappointed to find that this money is only enough for your livelihood in 30 years.
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Inflation: Many nominal gains you see in the financial statements will decrease because of inflation. Your real income adjusted for inflation will be less. Assuming that the inflation rate is only 3%, the $1 million in your account is likely to be equivalent to the $411000 today in 30 years. It’s not too bad, is it? But by American standards, you are not rich.
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Social Security Fund: According to the recent discussion of the Washington government, it is clear that the social security fund will not be canceled as many people said. Even so, the complex formula used to measure and adjust social security benefits before considering inflation may still change, resulting in reduced welfare. You may also have to wait until you are 70 years old to get social security benefits. If, from now on, the growth rate of social security benefits has lagged behind inflation for 30 years, the money received by retirees is only 75% of the current value. This means that you must earn more money by saving and investing, and enjoy the same life as those who retire now.
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Saving money: As you can see, if you want to be comfortable or even better after retirement, you should stick to saving retirement savings. You can ask your employer to let you join the 401 (k) retirement benefit plan, or you can open an IRA. The advantage of 401 (k) retirement benefit plan is that this money is saved before you see it and want to use it. IRA and 401 (k) provide tax benefits, so they are more suitable for saving retirement savings than general accounts.
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Investment: Once there is money in the savings account, it should be properly invested, neither too risky nor too conservative. Some people like to deposit their money in a bank guaranteed by FDIC 2. They think that with this insurance, money will never be lost. This investment method is also doomed to slow the growth of investment compared with inflation. Even if the interest is included, every penny saved in the bank will be reduced by investing in this way. Arbitrary choice of stocks, options and other rare channels of investment will also lead to devastating consequences. Individual investors manage their investments by themselves, often unable to obtain good market returns. You can buy public funds and ETFs, hire experts within your ability to manage your money.
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Only when you understand the situation in the decades from now to retirement and start saving money for retirement, will you be more likely to invest better in the future and have a stable and comfortable retirement life.
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Rose IRA: a non tax exempt IRA proposed by U.S. Senator William Roth in 1997, the reverse “IRA”, was applied in 1998.
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FDC: The Federal Deposit Insurance Corporation (FDIC) is an independent federal government agency established by the U.S. Congress. It maintains the stability of the U.S. financial system and public confidence by providing insurance for deposits, inspecting and supervising financial institutions, and taking over failed institutions.