Don’t Let Online Retirement Calculators Scare You Off Investing
I remember exactly where I was when I realized how long it would take to accumulate annual income.
I think I’ve told this story before, but I started my first full-time office job to save money. I was going to live beyond my means! I was going to create my own emergency fund! I was going to fund my retirement account and get a company match!
Then I started doing math.
Even if I set aside 20 percent of my pretax income for retirement – which seemed like a phenomenal amount – it would take me five years of work to accumulate annual income.
And of course, investing that income should help it grow, and lowering my spending should mean I didn’t necessarily need an annual pretax income for each year of retirement, but I couldn’t really control these factors. (Inflation? Market crash? Health care costs? The fact that I desperately wanted to be able to spend more money when I got older, otherwise I would be forever stuck in a miserable moldy apartment?)
All I could control was how much I was saving, and with the constant threat of layoffs, unemployment and unexpected large expenses, I couldn’t even control that.
It was an extremely discouraging moment, especially when I added all the years between my age at that time (27) and the age at which I planned to retire (67?), And divided them by five.
If I set aside 20 percent of my pretax income for 40 years, I might only have enough money for eight years of retirement — if I didn’t need the money first for something else.
But – and luckily for me – I decided to save some money anyway.
Over the next ten years, I saved my first $ 10,000, changed careers twice, ran into $ 14,000 credit card debt during one of my career transitions, got out of debt, invested, and raised my net worth to its current level. US $ 116,293.34.
I’m still not sure if my retirement is “enough” – I hope I will, and I really hope I can retire sooner, but I follow the advice that online calculators give me. a grain of skepticism.
And you should too.
As Grant Sabatier, author of Financial Freedom , told CNBC, it’s all about saving what you can and not letting long math frustrate you:
If you don’t invest at all, it’s hard to imagine that you can actually reach $ 10,000.
Fooling around with retirement calculators is definitely not a good idea. A person who sets aside a paltry amount – say, $ 10 a week – might be shocked: an error message.
To say the least, it’s hard to say that it will take you 487 years to retire or get an error.
Instead, Sabatier recommends starting with smaller numbers and more achievable goals. “Once I set aside $ 500 to invest, my next goal was $ 1,000,” he said. “It’s a trick of thinking to get your first 10,000.”
After saving my first 10 thousand dollars, it seemed to me that I could do anything. (It also seemed like the end of a very long and tight job , and I knew I needed a better work-life balance if I wanted to maintain that in the future, but it was still a huge achievement.)
After I saved my first $ 100K and the calculators started hinting that I could retire in 10 years if I kept saving and investing at that level, it was exciting, but it was also a reminder that I actually didn’t do anything else. time around. I made more money and lived in an area with a low cost of living, so I could save more. In the future, I may earn less and / or save less.
So all I can do is continue what I decided to do when I was 27: save as much as I can, invest as much as I can, and hope that everything else will work out for me.
I hope so too.
(Also, read Financial Freedom . This is one of the best personal finance books I’ve read in a long time.)