This month’s column is for Parents and their teenagers. Read on to find out why.
Listen up 16 year olds! Did you know that if you start now you can be a millionaire by time you retire? It sounds so far off. We admit it is a bit down the road, but you will love this plan. Read on…
Starting at age 16, save $2,000.00 every year until you reach the age of 21. That averages approximately $39.00 per week. The bulk of the $2,000.00 can be saved during the summer months. During the school year you may want to consider working at Wegmans, Price Chopper or obtain a Pennysaver paper route etc. The goal is to save a minimum of $2,000.00 per year. Chances are you will save much more than that. Sock your $2,000.00 into a Roth IRA. There are no age restrictions on when you can start a Roth IRA. But there are restrictions as to when you can obtain working papers. Working papers can be obtained through your high school. With a Roth IRA the income must be earned income – so get a job.
When you invest in a Roth, your money will grow tax free as long as you have the account. Withdrawals after you reach age 59 ½ will be tax free. Tax free is a good thing. At 16 you are probably thinking 59 ½ is old. Trust us, it is not old.
As long as your money is invested in common stocks and earning 10.7%. By the time you reach age 20, you will have $9,378.00. We know that is only $1,378.00 more than what you invested in the last 4 years. But wait, here is the kicker. Your investment in your Roth over a 4 year period is $8,000.00. You saved $2,000.00 every year for 4 years, right? On your 30th birthday that money would have grown to $25,917.00. Now keep in mind your total investment was $8,000.00. At age 40 you now have $71,625.00. $197,943.00 is what you will have on your 50th birthday. You will have $547,037.00 on 60th birthday. At 67 years old you will have $1,114,423.00. How many 67 year olds do you know living that large? Money in an IRA is willable.
All this from saving $2,000.00 between the ages of 16 – 20.
Let’s take this a step further. At age 21, you are probably living on your own, graduating college or working a 9 – 5. If you do not deposit another penny in your Roth IRA after you reach the age of 21, you are still going to be a millionaire when you retire. Suppose you continue putting money into your Roth IRA beyond your 21st birthday? The maximum amount that you can deposit into your Roth IRA for 2007 is $4,000.00. Let’s do the math, $4,000.00 multiplied by the next 20 years equals $80,000.00. If investing $8,000.00 over 4 years gets you $1,114,423.00 at age 67, what does investing $80,000.00 over the course of 20 years get you? Mind boggling, isn’t it?
And it all started with socking $2,000.00 away, every year for 4 years. Get started. If you’re broke, busted and disgusted at age 67 you have no one to blame but yourself.
Parents, a little information for you: partnering your Roth IRA with your employer’s 401K plan is ideal. Adults, if you do not have a Roth IRA, get one, it is never too late. Most companies allow you to contribute to the 401k plan after you’ve reached age 25 or you can join after one year of employment. Your company may have different or even better qualifications. Many employers will match a percentage of your contributions.
Parents, we urge you, do not depend on a pension only, it may not be enough. We are sure that you will agree that your standard of living should not decrease because you have reached the age of retirement. Are you aware that if you are age 50 or over, you can contribute up to $5,000.00 in a Roth IRA for 2007? In 2008, the amount will increase to $6,000.00.
Small business owners can open a Simplified Employee Pension Individual Retirement Account (SEP-IRA). A SEP-IRA is designed for small business owners, self employed individuals and their employees. A SEP-IRA allows small business owners to invest money for retirement on a tax-deferred basis. Tax deferred, another good thing.
You can get information at any bank or credit union. We prefer credit unions, they are more personal.
If you have teenage of if you know a teenager give them a copy of this article. If you are a teenager give a copy of this article to your parents. When it comes down to it, would’nt you rather be a millionaire at 67 years of age than a 67 year old, living month to month waiting for your Social Security check that is not enough to make ends meet?
For more information on improving your credit and your financial life listen to our radio program, Improving Your Credit Worthiness on WSIV 1540 AM. The program airs on the 1st and 3rd Wednesday from 2 – 2:30pm and on the 2nd and 4th Thursday from 4 – 4:30pm. Visit our website: http://www.improvingyourcreditworthiness.org. To schedule a workshop for your group or church call us at: 315-446-3294.
