The USS Enterprise stood as a formidable power and deterrent for half a century. She’s almost four football fields in length, has a flight deck that spans four and a half acres and weighed 94,000 tons. The “Big E” sailed a million nautical miles and played a role in major world events from Cuban Missile Crisis, to wars in Iraq and Afghanistan. She even did a cameo in Top Gun. However, she was the oldest active combat vessel in the fleet and readied for retirement in 2012. And she still sits today awaiting her fate of sink, scrap or save.
What’s holding up retirement of the world’s largest aircraft carrier? First is the issue of safely defueling and capping eight nuclear reactors. Budgetary issues arose. And others recommended she be saved – converted to a museum, or remodeled and placed into reserve. Hence, the Navy put on the brakes and studies alternatives.
So what’s holding you up in revisiting your retirement plans? Possibly it’s eyes on Washington watching four key issues. The year started with high hopes from sweeping policy changes – tax overhaul, healthcare reform, infrastructure spending and deregulation. However, as political dysfunctions continue, there are concerns that the anticipated policy changes could be scaled back, if they even happen at all.
However, life continues, we don’t get any younger, and there will be decisions to make often in the haze of uncertainty. Every day brings us closer to retirement, packing up our troubles and sending them to college or vocational training, and the next opportunity or life transition. Here are two actionable areas for your consideration.
How comfortable are you with your retirement spending budget? Cost of funding your future lifestyle is a core element in retirement planning. A big fear is the risk of outliving your wealth. However, MIT AgeLab reminds us of other risks, including inability to access big and little things in life. Don’t overlook something as mundane as “Transportation” in your budget. It plays important roles.
• Part of the glue that holds together many of life’s activities.
• Second largest cost in retirement – Tops for those aged 65-74 include housing (32%), transportation (17%), and food and healthcare (tied at 12%).
• Technology extends driving age – smart headlights, emergency response systems, etc.
• Alternative transportation modes when keys are “turned in” include friends and family, public transportation, van services, Uber and Lyft, etc. They can help reduce depression and decreased activity level from loss of driving privileges.
Twenty year olds can get a jump on saving and for better future options. IRAs or Roths are convenient places to start. Both offer tax advantages and the details can be found in IRS Publication 590-A and B. I’ll focus on the powers of time value of money and compounding.
Advantages of starting early – It’s cheaper! You’ll be a millionaire (almost) by saving the current IRA limit of $5,500 for forty years (from age 25 to 65) and average a 6% annual return. The actual accumulation is about $902,000. If you delay saving by ten or twenty years (start at age 35 or 45), then your savings need to increase to about $10,800 and $23,000 respectively (2x or 4x original savings rate).
Small increases can have big results. For each $100 additional savings monthly for forty years starting at 25, your accumulated wealth at 65 grows by about $200,000.
And check out the website TheFinancialDiet.com. It’s written by young people, for young people, and discusses a wide range of topics. Recent headlines online read “5 Mistakes I made after college graduation (and what I learned from each)” and “Exactly how you can save $10k this year on a $40k salary.” Note: of course there’s a wide range of cost of living throughout different parts of the country. Key points include (a) making saving a priority, and (b)you’ve got to be more serious about your money than anyone else on the planet – even your financial advisor. Good luck.
Brian M Loy, CFA, CFP Reno Gazette Journal July 16, 2017