• 3 weeks ago
Ric Edelman, Founder of The Truth About Your Future, joins TheStreet to share some tips about how you can plan for early retirement.
Transcript
00:00And so what are some other secrets to a successful early retirement planning?
00:07Well, the best thing, the number one piece of advice is simply to spend less than you earn.
00:12Too many Americans spend more than they earn, and the biggest problem is that they turn to
00:16credit cards. Since they don't have the cash available, what they do is they put that expense
00:22on a credit card, whether it's dinner out this week or buying a refrigerator. And what you're
00:27doing when you use a credit card is that you're obligating future income, which means the money
00:33you haven't yet earned is already spoken for. By the time you get that income, next month's
00:38paycheck or the paycheck three months from now, you've already spent it by virtue of a credit
00:43card purchase today. And that means when the expense shows up in three months for something
00:48new, you don't have the money because you've already spent the money on the prior purchase.
00:52And this creates the credit card spiral, and that's a death trap. So the solution is to spend
00:58less than you earn. Don't spend money that you don't already have. That's the number one thing.
01:04The number two thing is to increase your savings. And the single best way to do that is in your
01:09retirement plan at work. If you have a 401k or a 403b or you work for the government with a
01:15thrift savings plan, wherever you happen to work, chances are they offer a retirement account of
01:20some type. Most Americans are not participating at all, or if they are, they're not contributing
01:26the maximum that they're allowed. So that's what you really want to do is go to your boss and tell
01:32them you want to increase your contribution to the retirement account. This is painless. It'll come
01:38right out of your paycheck. You won't even know what's happening. It's all on a pre-tax basis.
01:42Many employers will actually match your contributions. That's free money for you.
01:47And that is a wonderful way to jumpstart your savings that too many Americans ignore.
01:53So we have a lot of people come through here and they give us different numbers. What's your number
01:58in terms of the percentage of your income that you should stock away to that retirement account?
02:05Well, I'm going to scare you, but give me a moment. 25 percent. That's scary, right?
02:1225 percent of your income. But don't worry. It's not as horrible as it sounds because that includes
02:19your social security contribution. And that, between you and your employer, is already about
02:2415 percent. So of the 25 percent, you're already halfway there. Then if you join your retirement
02:31plan at work and you put in five percent of your pay, many bosses will match that with maybe 50
02:38cents on the dollar or 100 cents on the dollar, which means that's another seven and a half or
02:4310 percent. Just between social security and your 401k, you're near that 25 percent goal.
02:50So my point is real simple. You need to be saving more than you are. However much you're saving,
02:58save more. I have never encountered a client, ever, in my 35 years of doing this. No client
03:04has ever yelled at me because they saved too much. So the big lament is that people aren't
03:10saving enough. You need to save more. However much you're saving, increase it. You'll be glad you did.

Recommended