If you’ve managed to put aside $50,000 for retirement, that might look hefty, but unless you’re still rather young, it’s probably far from enough. A quick visit to Bloomberg’s retirement calculator shows that if you’re 45 and you want to end up with $1 million at retirement, you’ll need to sock away close to $17,000 annually until age 65. And for many of us, $1 million won’t even be enough!
The solution: There are many ways to improve your situation, and it’s best to act right now. Save much more than you’ve been saving. Invest it effectively, realizing that CDs and most bank accounts offer low growth or no growth, especially when you factor in inflation’s average rate of 3% per year. Make the most of retirement accounts such as IRAs and 401(k)s, especially if your employer offers matching funds. Consider working a few more years. Consider downsizing, and working part-time for a while in retirement, too.
That’s right — an annual percentage rate of 365% on debt. Impossible, you think? Unfortunately, it’s very possible. We’re talking about “payday loans” here, which used to be offered by relatively small outfits, but are now being joined by big banks, which see the promise of big profits. (Remember — those big profits banks reap are coming from somewhere, and it’s often from you and me.)
With payday loans, someone who urgently needs money receives a short-term advance on his paycheck, at what might seem like a reasonable interest rate. But if you annualize a 10-day, 10% loan, it ends up costing 365%. Sure, many people pay off these loans on time, but many don’t — after all, if they’re desperate enough to take out a payday loan, they’re likely on shaky ground. Some payday loans have APR equivalents of 500% or even 1,000%.
The solution: Steer clear of payday loans if at all possible. If you really need to borrow some money short-term, shop around for the best deal. Be sure to check with your local credit union, which may offer better terms.
That’s how much the SP 500 (^GSPC) index of 500 of America’s biggest companies lost in 2008. It’s a great reminder that though the U.S. stock market has kept growing for more than two centuries now, it hasn’t done so in a straight line. A number like that tends to scare some people away from stocks permanently or for a few years, but then they often miss out on powerful rebounds. In 2009, the SP 500 gained 27%, and in 2010, 14%.
The solution: Be prepared for occasional market drops. Don’t keep any money in stocks that you expect to need within five or even 10 years. When market crashes happen, consider snapping up shares of great companies whose stocks are now on sale. Remember — buy low, sell high. Crashes can offer great low entry points.
The big picture
Don’t let numbers like the ones above terrify you or depress you. They don’t have to cause you pain. Cheer yourself up by thinking of happy numbers, such as the growing size of your portfolio, the dollars you can save by forgoing a few impulse buys each month, and the high scores you’ll rack up at the bowling alley in retirement.