Will you reach financial independence? Financial independence means having the ability to do what you want, when you want, without concerning yourself with "outside" financial resources. It's an attainable objective, especially for those who start saving and investing early in their lives.
Many people would like to reach financial independence long before retirement age. However, this is a real challenge with today's longer life spans, because you may have to support yourself for 30-plus years beyond your retirement.
This sobering truth highlights that the reality of a comfortable, satisfying retirement doesn't happen accidentally. It must be planned and considered as part of our overall spending decisions.
It is regrettable, but most people do not make this a high priority because they don't understand what needs to be done or how to do it. We are more focused on day-to-day living and don't take deliberate action to prepare for our long-term financial future.
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It's never too early (or too late) to begin planning for your financial independence and retirement. Here are some numbers that may help you get started.
The following table shows how long it would take you to accumulate $1 million by investing different amounts of money each week or month, assuming you earned 8 percent after taxes on your investments. And 8 percent is not a given; you'll have to work very hard for it.
WEEKLY MONTHLY YEARS
$43 $190 45
$66 $286 40
$154 $671 30
$390 $1,698 20
$1,257 $5,466 10
Looking at it another way, you'll need almost $600,000 of capital for every $5,000 you spend each month if you get an 8 percent after-tax return -- before inflation -- at 65, living to be 85. The following table shows these figures over different lengths of time.
CAPITAL MONTHLY YEARS
$681,417 $5,000 30
$597,771 $5,000 20
$412,107 $5,000 10
Your retirement should be something to look forward to and enjoy. But according to the Social Security Administration, the majority of those 65 or older are "entirely dependent" on their Social Security payments. The average annual benefit paid by Social Security for 2007 is estimated to be $12,528 per retired worker; for a retired worker and spouse it's $20,556.
Invest some time now in planning for your financial independence and retirement. It will make a big difference for your financial future.
This is the ninth feature in a series outlining the Your Financial Partner Personal Financial Management System. Next, we'll focus on your major expenditures.