This is the phase that everyone wants to talk about but few do anything about. The news and popular media talk about wealth and the trappings that go along with it. Popular culture, movies and entertainment tout the benefits of large houses, cars and expensive toys. Rarely do they talk about true wealth and how to accumulate it.

Getting Started

Let’s get to the nitty gritty of it all. There are a few steps that you need to take before you even get started:

1. Write down every dollar that you spend over the next month. Examine why you have each expenditure, and is it necessary? Could you do without it?
2. Examine your debt. What can be reduced? Put your debt in two lists. Sort one list by size and the other by interest rate. Payoff the small debts first. Create some small successes. As you pay some smaller debts off, look to also eliminate some of the higher interest loans.
3. Make sure and pay your biggest fan first, YOU!! You should save at least 10% of your salary with the goal of taking that to 20%
4. Set a goal of giving 10% of your earning to the charity of your choice. For many that may mean donating your time in the beginning. Use your earnings per hour in your career as a guide.
5. Take advantage of all three of the savings buckets available: Tax deductible savings – Employer sponsored plans. Tax deferred savings – Life insurance, ROTH IRA’s. Taxable savings – These are plans like passbook savings accounts, CD’s and money market accounts. Used for emergency savings.

This is the most important phase that everyone overlooks. You will want to have a liquid account with a value that equals 6 months of your necessary expenses. This is in the event of a job loss, illness, natural disaster etc. so that you household could maintain itself for that period.

The other goals that you will want to accomplish, is to have paid off all your debts that are attached to major purchases over the period of 18 to 36 months. The only debt that should remain is for housing. The goal would be to have housing debt paid off within 48 to 60 months. You would then want to stretch the life of these purchases to 10 to 15 years.

Once you have accomplished all of the goals, except housing, you can move that cash flow towards retirement savings with a vengeance. When housing is paid off, then that should represent a quantum leap in your retirement savings. A key element is to avoid the temptation of “keeping up with the Joneses”. This can mean doing things a little different than others. An example would be cooking your own meals rather than eating in restaurants the majority of the time. Take the difference and apply it to your retirement plan, saving or debt reduction. Spending money on self-improvement is more productive than spending money on entertainment. Each expenditure should be examined and the decision made it this more important than meeting our risk based or retirement needs.

These are decisions that should be continually reviewed. As income increases and / or debt and expenses are decreased you must reallocate your net income.

What is my chosen career?

When making a career choice, keep in mind this is what you are going to do for the next 35 to 40 years of your life. It is important that you make a choice that you will be able to stay with and not lose your sanity. There are many assessments that will help you best determine a career that suits who you are. It is better to chose something that works toward your natural strengths.

Trial and error may come into play. You may have to try a number of jobs before you find the career that will be the right one for you. Career selection is a highly personal choice. For some being able to work outdoors and not be confined to an office is desirable. These jobs become less desirable as a person ages. Usually these careers pay more in the early years, relative to office jobs. This career path requires a level of physical fitness and somewhat less mental fitness. Over time the physical activity becomes harder to maintain and even harder to increase. On the other hand, an office career usually starts out relatively lower in pay. However, over time it becomes easier to increase one’s mental capacity instead of rather than physical ability. This however also comes with a price. A sedentary life style has negative effects on one’s physical health. It may be desirable to schedule exercise as a part of your off time.

Post high school education will not guarantee you a higher salary, but it will help. Either trade or vocational schools or colleges and universities will improve your opportunity to earn more over time. Both of these will require a financial commitment. For an initial period even after your education is complete you may not make as much as those with less education or training. This will be offset over time. The important thing is to get education in an area that you feel you will be able to work in throughout your working career. The next thing to remember is to be prepared to change directions later in life.

Post retirement

Technology will change things as you age. Things that were necessary to society and highly valued may become worthless as you grow older. Buggy manufacturers in the 1800’s were prized but today are very valued. Typewriters in the 1960’s and 1970’s were an important part of business, but today you can’t give them away. Continued study and willingness to adapt will serve you well throughout your career. As science continues to increase our productive lifespan, this may even become necessary.

In the early 20th century, the life expectancy for the entire world was 30 to 40 years. In 2008, the average life expectancy of the world is 66.12 years of age. The United States has a much higher average. The current average life expectancy for the United States is 78.06 years. This means since 1900 life expectancy has increased by 66%. In 1900 you were even expected to live to the current retirement age of 65. Many insurance companies are basing their insurance policies on an age of 120. If this were to happen, it would mean that savings of 35 to 40 years would have to support a life style that would last for 55 years past retirement. You will either have to choose a longer working career, a part-time career, a higher savings rate, or a lower standard of living after retirement or some combination.

Another factor to consider is inflation. Let’s assume you have a retirement income need of $5,000 per month. If we use an age of 65 and assume a life expectancy of 90 having an inflation rate of only 3% will increase that income need to $10,468 per month.

Health insurance is another often overlooked factor. Health insurance costs are rising faster than inflation. This means either you will have to make health insurance a part of your retirement package from your employer, plan for rising costs that will outpace your investment earnings or continue to work for insurance benefits. This along with the cost of home health care in the event of a chronic illness or injury could wipe out your entire retirement nest egg

Summary of How to Achieve Retirement Success

In summary, there are several things to take into account when preparing for retirement.

1. Take advantage of your most valuable asset, TIME! The earlier you get started the sooner compounding can help you.

2. Starting with a relatively more aggressive allocation in younger years and then gradually becoming more conservative as you get closer to retirement is an advisable strategy.

3. Eliminate debt as early as possible.

4. Create a systematic strategy towards eliminating debt and savings.

5. Pay yourself first.

6. Educate yourself.

7. Be flexible.

8. Make decisions based a long term strategy.

9. Consistent returns are better than extreme highs and lows