Retirement is a major financial fear (and how to overcome it)

Today, while I was reading in Feedly, one article from pops up in my eyes: College Worries Trump Retirement for Parents, Data Says. Specifically, this part is very interesting but scary:

Gallup conducted interviews between 2001 and 2015 asking participants to rank their chief financial fears and then divided that data into different subgroups. While retirement was the primary worry among most subgroups, for parents of children younger than 18, paying for college topped their list of financial concerns.

To us, it is true that retirement is our major financial concern.

A natural question is: how much money I/we need for retirement? I wrote two articles on this topic (see here and there), and the bottom line is: it’s approximately one million dollars, or eight times of your ending salary.

I dig deeper into the original Gallup poll, and the three highlights are very intriguing:

  • Thirty-one percent of nonretirees plan to keep working past age 67
  • A quarter of seniors are still working or retired after 67
  • Four in 10 seniors retired early, before they turned 62

As you can see in the Gallup poll, the expected retirement age becomes late every year. Though I deeply love my job, working past 67 for salary and not ready for retirement is not what we want.

What we can do about the situation?

Prioritize retirement, not matter what

The take away message I got from article is: prioritize retirement, regardless of your children’s college expense:

Remember, you can always borrow money for college, but you can’t borrow money to pay for retirement. That said, just because you can take out loans on your kids’ behalf doesn’t mean you should. Morningstar reports that for every $1 of student debt you accumulate, you’ll set your retirement savings back $0.35. This applies regardless of your age or income level. So if you decide to take out a $40,000 loan to pay for your children to attend college, you’re likely to wind up with $14,000 less in retirement savings. Now that may not seem like much, but over the course of a 20-year retirement, that’s $700 less per year to cover expenses like housing, transportation, and medical bills.

If you do not like to read words, then the following figure from JP Morgan Asset Management should be very compelling:

Their example consists of three people who experience the same annual return on their retirement funds:

  • Susan, who invests $5,000 per year only from ages 25 to 35 (10 years).
  • Bill, who also invests $5,000 per year, but from ages 35 to 65 (30 years).
  • And Chris, who also invests $5,000 per year, but from ages 25 to 65 (40 years).

At the end, Susan only saved for 10 years, but she end up having more than 1 million dollars with only $50,000 dollars investment, as opposed to Bill and Chris, who invest $150,000 and $200,000 respectively.

Our goal in 2017 is to save more in our retirement account, and capitalize the compound interest. If you have not started your investment account, start it TODAY.


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