Job growth is finally picking up. According to the Labor Department’s February Report, U.S. companies have added jobs for the last 12 straight months. What’s more, some momentum seems to be building.
Here in the Golden State the employment picture is glimmering for the first time in years…
“California, which was still losing jobs as recently as September, has added nearly 200,000 jobs in that time [February 2010 through February 2011],” reported AP. “That’s second only to Texas, which added 254,200 net jobs.
“Nearly half of that increase in California occurred in February, when the state gained 96,500 jobs. That’s the most on records dating back to 1990.”
Still, California has quite a task to recoup the 1.3 million jobs lost during the economic bust, which began in December 2007. Nonetheless, the best month for job creation in over two decades is a good place to work from. Who knows? With a little luck people may be able to actually save something for retirement.
How to Retire with $1 Million Dollars
Saving money is very simple. There’s no secret to it. There are just two ways to go about it. We’re sure you know what they are. But just for the sake of it, we’ll review them with you…
1. You spend less than you make.
2. You make more than you spend.
Pretty simple, right? But while it may be simple, if you’ve ever tried it, you know it ain’t easy.
According to Jonathon Burton, at MarketWatch, “Reaching age 65 with $1 million saved requires strong discipline and sustained effort. You need to recognize the importance of starting early and putting money away regularly. But even if you don’t have as much time, you still have options other than a last-ditch Hail Mary pass.
“Call it a 7% solution. Assume a 7% inflation-adjusted return from a portfolio of U.S. and international stocks, bonds and cash — not overly aggressive, but an expected return that requires taking some risk — and living well within your means.”
Here’s how it works…
“If a 25-year old with $10,000 invested $320 a month at a 7% annual compound rate of return until they turned 65, they would wind up with $1 million.
“Ten years later, the price of waiting has been high. Not as costly as it will be, but tough enough. Instead of $320 a month, you’re looking at saving $775 a month to turn that $10,000 into seven figures at a 7% annualized return.
If you wait to save for retirement until you’re 45, “you’ll need to add $1,850 every month to that $10,000 base in order to reach $1 million in 20 years.”
And of course, the longer you wait to start, the harder it is to save a decent nest egg.
“At 55, the amount needed to reach $1 million with a $10,000 bankroll is both comical and sad: $5,700 a month for 10 years.”
In other words, if you wait until 55 to start saving for retirement, you’ll work until the day you die. Regardless, the days of a long, relaxing, retirement are about gone anyway…even if you do save.
More Certain than Death and Taxes
Burton’s 7% solution assumes a 7% inflation-adjusted return. And therein lies the dilemma. All the while, while you are saving for retirement, inflation is diluting the value of your funds.
When you get right down to it $1 million dollars today is no longer the $1 million dollars of yesterday. It’s a lot less. In actuality, according to the Bureau of Labor Statistic’s own inflation calculator, $1 million dollars in 2011 is worth about what $47,500 was worth 100-years ago – less than 5 percent.
Very few people live to be 100-years old. But even over a 20-year period inflation can significantly grind away at your savings. Last Friday, while speaking in New Delhi, India, Warren Buffett said, “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”
With the smart fellows pulling the monetary levers at the Federal Reserve inflation is more certain than death and taxes…it’s one of life’s certainties. In fact, inflation of the money supply is the Federal Reserve’s stated goal.
The Consumer Price Index for February clocked an increase of 0.5 percent – or 6 percent on an annualized basis. If you subtract out the cost of food and energy – which the Fed likes to do – the CPI still rose 0.2 percent, or 2.4 percent annually. Taking the lower number, an inflation rate of 2.4 percent guarantees that people’s money will lose half its purchasing power within a generation.
What this means is even if you have the industriousness and discipline to save $1 million for retirement, by the time you need it, it’ll only be worth about $500,000…or perhaps even less.
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