Ever wondered why some people thrive in retirement while others struggle to meet that million dollar retirement number?
Today, I want to talk about the four key levers that contribute to retirement planning success: how much you earn, how much you save, how much you invest, and how early you start. By exploring these components, we can uncover the mystery why some people have money for retirement planning while the rest of us find setting aside enough so challenging.
How Much You Earn
Earnings power is the cornerstone of wealth creation. The more money you earn, the better your chances of saving and investing effectively. Does that mean that only high income earners stand a chance for a comfortable retirement? No, but they certainly will have an easier time assuming they manage the other 3 levers of wealth creation correctly.
So what happens if we feel we aren't earning enough to set aside much savings? Consider taking up side hustles, make an effort to upgrade yourself for promotions and job advancements or do a career switch for higher remuneration.
While earning more might sound like common sense, finding the willingness to take on side gigs outside our core working hours has proven to be a test to how much people want the extra income. In fact, even investing in higher qualifications, acquiring new skills for job advancements is not something that many are committed to do because it involves investing significant money, time and efforts upfront. A career switch will test the resolve of most people even more.
How Much You Save
Savings are essential for wealth accumulation and provide a safety net. There's this saying, it's not how much you earn but how much you save that contributes to building wealth.
In the book Rich Dad Poor Dad, Robert Kiyosaki advocates the concept of "paying yourself first". Essentially, deciding how much you want to set aside each month before spending on your lifestyle.
Let's put this in numbers for you to visualize:
You can see that even though John earns more than Michael, he saves only 20% of his income while Michael manages to save 57% of his income. In the long run, Michael will have more funds ready for retirement than John.
Now you might question, didn't you say the first lever is earning more? Ultimately it's about lifestyle choices. John has the capacity to save equally as much or more than Michael with less effort should he wish to.
There are many financial websites that advocate a minimum savings rate of 20%. However, based on my own experience working with clients in Singapore, those who save more than 40% of their incomes are the ones on track to their ideal retirement.
Another relevant read: Why solely saving in the bank is impractical
How Much You Invest
Investing is vital for growing your wealth. Simply saving money isn't enough; you need your money to work for you. When inflation sits at about 3%, keeping your cash in a standard savings account, which might yield only 0.05%, means you are effectively losing purchasing power.
If you look at this diagram, we can see the relationship between how much we earn, how much we save and how much we invest. Our income will determine what's the total amount of resources we start with. How much we save will determine how much resources we are left with each month. Within the total amount we save, we then get to decide how much of this amount we choose to risk for higher returns.
In general, the principal is to ensure our money work hard for us even while we are sleeping. This is something investing our unutilized cash can do for us. By doing so, we will now have 2 avenues to build wealth - our active income and our money invested.
How Early You Start
Starting early may be the most significant factor in wealth creation. The earlier you begin planning for retirement, the easier it becomes to secure financial freedom.
For instance, if you start saving at 30, you will need to invest a monthly amount of $900 at 5% to reach a million dollars in savings by 65. However, if you start at 40, you'd need to invest close to $1,700 monthly to reach the same goal.
The impact of compound interest is profound. By starting your investing journey earlier, you can benefit from smaller initial investments while building substantial wealth over time. This method creates options and flexibility as you approach retirement.
To Conclude...
People who are able to secure their ideal retirement often share these common habits:
they earn a strong income
they save a significant portion of it
they invest wisely
they start as early as they can
By focusing on these four levers, maintaining your existing lifestyle or even having an upgraded lifestyle during retirement is not a far-fetched dream. The journey to a reliable retirement may seem overwhelming, but by understanding how to push these levers, anyone can improve their financial future.
After reading this article, you may have some questions or may want to get started on retirement planning. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about retirement.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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