Written by Hi, it’s Dre Griggs with Obsidian Wisdom. Today, we’re discussing how to start a retirement fund. Starting a retirement fund is a fantastic opportunity for you to put a plan in place and purchase your freedom.
Understanding Flexibility in Retirement Planning
One of the most important parts of starting a retirement fund is maintaining your flexibility. You’ve heard me ask before, what benefit is it to gain the whole world if it costs you your soul? When you look at the numbers and see that 80 percent of people are unhappy with their job, you have to ask yourself, why is that? I would say the answer is because they lost their flexibility.
The Trap of Earned Income
Often, we go to college, study something we enjoy, start making decent money, get a house, have kids, get married, and buy a new car. Next thing you know, we need a certain amount of income to support that lifestyle. We’ve lost our flexibility, and our income is only earned income. The way we earn it saps the life from us, making us feel unfulfilled. Transitioning to something we enjoy might require a significant pay cut, but the system never shows us how to generate income outside of earned income.
Breaking Free from the Stability Straitjacket
Many of us believe we’re stuck, going to jobs we don’t like to fund a lifestyle we’re no longer excited about. Retirement can be the best-kept secret to a satisfying, happy, and fulfilling life. The system emphasizes stability and security, often leading to a stability straitjacket that restricts our flexibility. This is why many people live paycheck to paycheck and retire with little savings.
The Importance of Flexibility and Wealth
Wealth that enslaves the owner isn’t wealth. At Obsidian Wisdom, we focus on maintaining your flexibility and freedom as you build wealth. Wisdom allows us to make better decisions based on our experiences and insights. While we can’t go back in time, we can make decisions now as if we’ve already lived through them.
Outlining Your Goals
To start your retirement fund, begin by outlining your goals. What does happiness look like for you? What would you like to do with your time? Where would you like to go? Who would you like to meet? Write down your goals and build a fulfilling and meaningful retirement plan around them. Understanding what you want to do in retirement is crucial.
Calculating Your Retirement Needs
On average, you might spend about $2,000 per week of vacation per person. For healthcare, it’s estimated that retirees will spend around $315,000 over their retirement. Additionally, 70 percent of people 65 and older will need long-term care, costing about $40,000 per year for an average of three years. You need to allocate for these expenses and any other goals, such as paying off your mortgage or funding your children’s education.
Generating Income in Retirement
The IRS recognizes seven streams of income, and 65 percent of self-made millionaires have at least three. The three main asset classes for these income streams are real estate, business, and the stock market. Each offers multiple ways to generate income, such as rental income, business profits, royalties, dividends, capital gains, and interest income.
Starting with the Stock Market
For most people, starting with the stock market makes the most sense due to its low barrier of entry and variety of options. Take advantage of free money through employer-sponsored retirement plans, like 401(k) matches. Automate your contributions and stay consistent.
Pre-Tax and After-Tax Investments
Pre-tax investments, like 401(k)s and traditional IRAs, allow you to deduct contributions from your taxes today but will be taxed as regular income in retirement. After-tax investments, like Roth IRAs, grow tax-free and can be withdrawn tax-free in retirement. Diversify your income streams not only by asset class but also by tax treatment.
Exploring Real Estate and Business Investments
Once you’ve allocated money to your retirement accounts, consider other investments like real estate or starting a business. Real estate can generate rental income and appreciate over time. Businesses can provide profits and royalties. Choose investments based on your risk tolerance and expected returns.
Monitoring and Adjusting Your Plan
Starting your retirement fund is just the beginning. Monitor your plan regularly and make adjustments as needed. Your goals, circumstances, and investment returns will change over time. Stay informed about new laws and opportunities that can benefit your retirement plan.
Final Thoughts
To start your retirement fund, follow these four steps:
- Set up your account.
- Automate your contributions.
- Review your investment options.
- Stay informed.
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