{"id":602,"date":"2013-06-08T07:58:44","date_gmt":"2013-06-08T11:58:44","guid":{"rendered":"https:\/\/www.cashflownavigator.com\/blog\/?p=602"},"modified":"2018-08-13T19:27:12","modified_gmt":"2018-08-13T23:27:12","slug":"want-to-reach-your-retirement-savings-threshold-be-sure-to-heed-the-signs-along-the-way","status":"publish","type":"post","link":"https:\/\/www.cashflownavigator.com\/blog\/2013\/06\/want-to-reach-your-retirement-savings-threshold-be-sure-to-heed-the-signs-along-the-way\/","title":{"rendered":"Want to Reach Your Retirement Savings “Threshold”? Be Sure to Heed the Signs Along the Way!"},"content":{"rendered":"

In an earlier piece, with a reference to Albert Einstein, I wrote about \u201ccompounding\u201d the compound interest on your retirement savings by making regular contributions.\u00a0 That\u2019s a key first step to ensure a steadily growing savings balance, particularly if there\u2019s an employer match to go along with your contributions.\u00a0 But for that savings growth to take a sharp turn upward there\u2019s also an important second step: WAITING.<\/p>\n

Why?\u00a0 Because if you hang in there long enough you\u2019ll finally be rewarded by reaching a critical threshold\u2026a point when the compounding effect really kicks in and your savings starts to grow at the speed of light (well not quite that fast, but you get the idea).<\/p>\n

The story of the king and the court jester illustrates this compound interest threshold.\u00a0 Legend has it that a long, long time ago a court jester\u2019s heroic act \"image<\/a>saved his king.\u00a0 The king was so moved by the jester\u2019s bravery that he offered to give the jester anything he wished for.\u00a0 The jester wished for one cent, doubled each day for a month.\u00a0 \u201cThat\u2019s all?\u201d said the king.\u00a0 The wish was granted.<\/p>\n

Halfway through the month the\u00a0balance grew to only $164. \u00a0But during the final week it started its rapid rise — it passed the threshold — and spiked, ending the month at over $5.3 million.<\/p>\n

As you can see in the graph, it took some time for the small initial amount to grow. \u00a0But eventually the balance grew large enough so that with each doubling it started shooting up very rapidly.<\/p>\n

So how can you reach your<\/em> retirement savings threshold? \u00a0You just have to heed some signs along the way.<\/p>\n

\u00a0 \u00a0 \"image<\/a>\u00a0 \u00a0 \u00a0 <\/strong><\/p>\n

Early<\/strong><\/p>\n

First, Start early. \u00a0As the graph above shows, you need to invest as much time as money for the compound interest formula to work.<\/p>\n

 <\/p>\n

\"image<\/a>\u00a0 \u00a0<\/strong><\/p>\n

For Maximum Contributions<\/strong><\/p>\n

Next, Go for the maximum contributions you can afford. \u00a0If your employer offers a 401(k) or similar type of matching account, be sure to contribute at least an amount that maximizes the company’s match. \u00a0For example, if they match your first 3% dollar-for-dollar, then your 3% contribution doubles to 6%. \u00a0There’s nothing better than free money, so at the very minimum contribute that amount — more, if the extra amount is tax deferred and you can afford to do so.<\/p>\n

\"image<\/a>\u00a0 \u00a0<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/strong> \u00a0<\/strong><\/p>\n

\u00a0the Nest Egg<\/strong><\/p>\n

Remember: You need to wait. \u00a0Avoid interruptions or reductions in your contribution amounts; whenever possible, increase<\/em> them. \u00a0And don’t touch your steadily growing nest egg, for doing so disrupts the compounding formula and can set you back many years. \u00a0In particular…<\/p>\n

DON’T \u00a0 \u00a0\"image<\/a>\u00a0\u00a0 to the Temptation to Withdraw<\/strong><\/p>\n

Make every<\/em> effort to avoid withdrawing money from your retirement account. \u00a0Most accounts impose hefty penalties for early withdrawals; plus you lose so much of that up-front compounding time you’ve invested. \u00a0At times we all face financial challenges, but even on those occasions if at all possible make retirement account withdrawal the option of last resort.<\/p>\n

An alternative to withdrawing money is to borrow from the account. \u00a0As a general rule this too should be avoided but there may be exceptions, as long as you’re in a a position to repay the loan promptly. \u00a0The advice of a financial advisor could serve you well when considering this option. \u00a0<\/strong><\/p>\n

\"image<\/a> <\/strong><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 <\/strong> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/strong><\/p>\n

Before Collecting Social Security<\/strong><\/p>\n

Congratulations! \u00a0If you started early, followed the signs and stayed with it into your 60s, you will have passed the threshold and accumulated a sizable nest egg. \u00a0You can now supplement that amount with a Social Security payment. \u00a0To maximize your Social Security benefit, follow the last sign: \u00a0Wait.<\/p>\n

You can begin collecting Social Security at any age between 62 and 70, but many people can’t wait so they start at 62. \u00a0That can be a costly mistake, for benefits at that age are cut drastically. \u00a0If on the other hand you delay Social Security from 62 to 70 your benefit increases by over 70%* \u00a0if that’s too long to wait, then at least consider waiting a little longer than full retirement age of 66, because each one-year delay between 66 and 70 increases your payment by 8%.<\/p>\n

So follow the advice of Albert Einstein…and the court jester. \u00a0Also, follow the signs: Start early, maximize your contributions, don’t touch. \u00a0And wait. \u00a0If you do, you’ll be rewarded by crossing your retirement savings threshold.<\/p>\n","protected":false},"excerpt":{"rendered":"

In an earlier piece, with a reference to Albert Einstein, I wrote about \u201ccompounding\u201d the compound interest on your retirement savings by making regular contributions.\u00a0 That\u2019s a key first step to ensure a steadily growing savings balance, particularly if there\u2019s an employer match to go along with your contributions.\u00a0 But for that savings growth to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,3,13,7,12,46,21],"tags":[80,89,92,53,81,78,25,23,88,91,85,83,74,87,76,79,84,77,82,86],"class_list":["post-602","post","type-post","status-publish","format-standard","hentry","category-cash-flow","category-financial-planning","category-investments","category-retirement","category-savings","category-wealth","category-wealth-accumulation","tag-401k","tag-benefits","tag-cash-flow-navigator","tag-cashflownavigator","tag-company-match","tag-compounding","tag-financial-independence-2","tag-financial-life-cycle-2","tag-invested","tag-keith-whelan","tag-monthly-income","tag-nest-egg","tag-retirement-2","tag-retirement-account","tag-savings-2","tag-savings-financial-independence","tag-social-security","tag-threshold","tag-wait","tag-withdrawing-money"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/602","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/comments?post=602"}],"version-history":[{"count":41,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/602\/revisions"}],"predecessor-version":[{"id":945,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/602\/revisions\/945"}],"wp:attachment":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/media?parent=602"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/categories?post=602"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/tags?post=602"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}