• Will Thomas

Retirement Savings Matters

“Money trees is the perfect place for shade and that's just how I feel” – Kendrick Lamar

Growing up in the Hip Hop era, I am accustomed to the thought of getting money to spend it because you never know when you might have to stare death in the eyes. With this mindset, majority of my family growing up did not save for a raining day. No shade, but it is just the culture we were raised in. You go to school for over 13 years of your life thinking about the cars, clothes, and houses you want to buy. There is no surprise, once you get a chance to make money, you don’t want to save a dime. What’s the point of working hard if you can’t enjoy the fruits of your labor, right?

Look I be riding through my old hood, but I'm in my new whip

Our culture has forced so many of my loved ones to rely on government assistance when they are no longer able to work for themselves. My dad is currently on disability at the age of 60. Unable to function the right side of his body due to a prior stroke, he has to rely on Social Security Disability to pay his assistant living bills. You probably will not believe how many of your family members above the age of 66 are relying on Social Security to make ends meet. How would you feel if the very politicians many of us despise controlled your financial wellbeing?

Don’t put your faith in your government!!!

Rumor has it that social security will run out before I will be able to utilize it. I hope social security is not part of your retirement plan! The government has total control over social security payments. At any moment, politics can change the livelihood of some many Americans currently relying on social security, including my father. I don’t know about you, but I want more control over my financial life.

This is why Retirement Savings Matters!!!

Now the question is, do you want control over your financial life? I already know some people are thinking, I want to live now! It’s possible I won’t even make it to 66. I get it I promise, but the odds are you will make it to “retirement” age, and if you are not prepared the American government will have control over your finances!

Along with our culture, the finance world makes it too confusing for some to trust saving for retirement. But I want to let you know, it is easier than you think. With the following steps, you can secure yourself for retirement and not have to rely on government funds! Plus, if social security is still available you can definitely be a ballin senior!

1. Save 10% of your income in a tax advantage account

I can save towards retirement and lower my taxes for the year? Yes, you can! This one should not be a hard decision to make! Whether your job offers a 401K or not, you can save in a tax advantage account! If your job offers a 401k, take full advantage. The money will come out of your paycheck pre-tax. At a minimum, you should always save up to your company match, but if you want to kill retirement, save more than 10%.

If your job does not offer such accounts, you can leverage an IRA or Roth IRA. These will be taken into account during tax time, and actually lower your overall tax responsibility. I’m not a financial advisor, but the Roth IRA would be my first choice. The interest earned is taxed immediately, allowing you to withdraw at the age of 59 and ½ tax and penalty free. The catch is you are only allowed to save up to a certain amount, which should suggest how much of an advantage the Roth IRA is.

Once you match out your Roth IRA, save the rest in a traditional IRA. It has a cap as well, but it is higher than the Roth IRA. The difference is that your money grows tax free, and you will be required to pay taxes on distribution later in life.

2. Invest against an mutual/index fund

With the above tax advantage accounts, you want to allocate your investment to mutual funds. Mutual funds are a collection of various stocks. Mutual funds are diversified and lower your risk from volatility by not investing in one stock or company. There are tons of index funds to choose from, but the key is picking the right one for your risk level.

If you do not want to worry about constantly monitoring your investments, you can choose a target date fund. These funds are managed to lower your investment risk automatically the closer the fund reaches the index fund’s retirement date. Just pick the fund that is around your expected retirement date, and don’t stress about the rest.

I personally am a fan of the S&P 500 index funds. These funds are benched marked against the S&P 500 index, so as the market goes your money will go. With an average return over 8% a year over the last 30 years, it is hard for most traders to outperform the index constantly over time. Warren Buffet has even won bets for those who attempted to beat the index over multiple years.

3. Build an emergency savings account

Once you have your consistent retirement savings in place, it is time to build your emergency savings up. The main goal is to protect you from the unexpected bills that constantly push people back into debt. With an emergency savings in place, you can regulate the amount of unknown financial responsibility you might face in the future.

4. Buy a house and pay it off before your retirement date

I truly believe if you live in an area for an affordable house you should buy one due to the benefits you get financially. The main goal should be to pay it if before your expected retirement date. In retirement, you want to lower your financial responsibilities. This will allow you to have flexibility and not have to worry about additional bills like medical payments in retirement, because you definitely will have medical bills in retirement. Having a paid off house retirement, opens up cash and eliminates the mortgage, which is one of the highest bills most households have.

5. Continue to save more of your income every year!

Continue to save!!! Remember the game is to not rely on the government for your financial success!!!

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