How to Make an Investment Plan For Life

Are you starting to think about an investing plan for your future retirement?

When you are in your mid-20’s, it can be hard to buckle down and put some of your hard-earned money into a fund that you won’t see for another 40 or 45 years. However, you must realize that investing early is incredibly important to your financial future.

If you wait to begin putting money away in your 40’s and 50’s, your investments will not have the appropriate time needed for growth.

Plus, because you waited so long to fund your retirement, you will have to invest more conservatively, and will therefore earn less for your later retirement.

Start Simple

If you are currently working at a desk job within Corporate America, then it is quite likely that your company will match your 401k contributions.

This is an amazing benefit and I would strongly recommend that you start contributing to that 401k to start receiving that free money for your retirement years!

If you typically have a few hundred dollars available at the end of each month, then I would suggest contributing 6% of your income, or at the very least contribute enough so that you get the full benefit of your company match.

If you are able to invest $400 a month (with the help of that company contribution) starting at the age of 25, your investments could easily grow to over $1 million dollars.

But, is that enough?

You Need to Understand Inflation

History has showed us that on average, our dollar has experienced about 3% inflation each year. This means that every single year, our dollar can purchase 3% less than it did the year before.

Therefore, if we do nothing, our money will continually be worth less and less.

So what does this mean for your investment accounts? If you don’t plan to retire for another 40 years, then inflation will cause today’s dollar to buy about 25% of what it will today.

In other words, if you earn $50,000 today and want to have the same purchasing power in retirement as you do now, then you will have to withdraw $200,000 a year from your retirement (which will occur 40 years from now).

If you only have $1 million, then your money will only last you about 5 or 6 years! Suddenly, that million bucks doesn’t sound all that impressive does it?

Re-Evaluate Your Investments

Now that you know your retirement fund might not be as beefy as it should be, what is the next step?

You really need to know how much you need in your retirement years. If inflation continues to increase at 3% each year, then expenses will double every 20 years.

If you spend $30,000 per year today and are retiring 20 years from now, then you will need $60,000 per year during retirement.

Once you figure out how much money you will need per year, then you can simply multiply this amount by 25 to figure out how much you will need in your retirement fund at the time you retire.

If you figured out that you needed $60,000 a year, then you should plan on stocking your retirement fund with $1.5 million.

So how do your investments look now that you know how much money you need to retire? Is it time to increase your contributions?

How to Make an Investment Plan For Life is a post from: Young Finances Please check out the site at http://youngfinances.com or connect on Facebook at YoungFinances. Thanks!