What’s Your Number?
Over the past week, a social media storm has rained down upon a US-based financial journalist who reported a ‘controversial’ study about savings and retirement goals.
Alessandra Malito of Market Watch reported the findings of a research project by Fidelity Investments and promptly became the victim of thousands of posts by financially frustrated internet trolls.
Donald Trump would be proud.
What’s Your Number?
With some dreamy pictures of an old man’s feat pressing into the soft sand as the sun goes down (nothing says retirement like “person on a beach”), Fidelity’s research went like this:
By 40, Fidelity says you should have 3 times your yearly income as retirement savings; by 50 you need 6 times… all the way up to 10 times your yearly income by retirement age of 67.
“Our savings factor rule of thumb is based on some key assumptions: You start saving a total of 15% of your income every year starting at age 25, invest more than 50% of your savings in stocks on average over your lifetime, retire at age 67, and plan to maintain your pre retirement lifestyle.”
My 3 Key Takeaways
1. People hate thinking about retirement.
I’m no longer certain who gets more emotional about retirement targets in the media, older people or younger people.
However, I think Fidelity’s 15% savings rule of thumb is right on the money (pun intended).
If you can save 15% of your income and reap the benefits of getting mandatory Super paid by your employer, I think you’ll be sitting pretty at retirement.
2. Starting early is important but it’s never too late.
Recently I heard some pretty amazing stories from ordinary people who knuckled down to save and invest larger and larger amounts of cash in less than 5 or 10 years. It is possible.
At the extreme end of things, I recently showed you how one of the world’s richest people made 99% of his wealth after turning 50. Click here to read more.
Not many people know this but Colonel Sanders, of KFC fame, experienced many financial failures before he became a success. The Colonel was 62 when he first sold his secret chicken recipe to another restaurant.
3. Having 10 times your salary at retirement may not be right for you.
The magic amount to fund retirement is very personal. It is heavily dependent on your lifestyle expectations and will be influenced by your investment returns from the time you leave your job.
Don’t Think. Do.
Instead of getting overwhelmed about financial milestones and goals, use a trick from weight loss experts and think in terms of systems.
Instead of “losing 10kg” as a goal, say to yourself “I’m going to do 30 minutes of exercise Monday to Friday – no matter what.”
Removing a goal and replacing it with a ‘system’ might seem trivial, but it turns worry into action. A can-do attitude will be born, and your target will take care of itself.
A Simple Retirement Plan
For Aussies over 45, consider making extra (before tax) savings into Super, up to the $25,000 annual limit. Then consider investing elsewhere.
For those under 45, I think it makes sense to do the same thing or invest a set amount of your wage (e.g. 20%) into long-term tax-effective assets like shares and property — rain, hail or shine.
It’s not timing the market that’s important, it’s time in the market.
Simple. Effective. Powerful. That’s how I plan to reach my magic retirement number.
Cheers to our financial future!
Founder, The Rask Group
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