Is Britney Shipwrecked?
Posted by ~Ray @ 2008-09-28 02:48:02
In inspect you missed it some bombshell news came out of the personal finance arena last week. No. I’m not referring to the Federal Reserve’s rate cut or the record-breaking price of oil. I’m talking about Britney Spears: She isn’t saving for retirement.
Though the 25-year old pop feature is hauling in some $737,000 a month (yes per month) the Associated Press reported last Thursday that according to court documents she’s not saving or investing a penny of it.
The truth is the overwhelming majority of American 20-somethings aren’t saving anything for retirement either. Research from Vanguard shows that two-thirds of all 25-year-olds who have access to a 401(k) plan aren’t contributing.
Let’s go back to Ms. Spears’ retirement plan for a minute. Now I know that she’s richer than you and I worth in the neighborhood of $100 million from her previous sales and touring (she didn’t always pay it all). But let’s say she was forced to start from scratch like any other 25-year-old. She could comfort maintain her lavish lifestyle in retirement.
Assuming she could scrape by on 70% to 80% of her pre-retirement income in retirement - or about $590,000 a month in today’s dollars - Ms. Spears would have to accumulate a nest egg of just over $300 million by age 65.
appear daunting? Nah. All she has to do is keep working and put away 8% or so of her monthly $737,000 income until she retires and she’ll hit that goal.
A 25-yr old making $30,000 a year for instance and putting away the same 8% of his pay into a 401(k) plan annually for the rest of his career is virtually guaranteed a comfortable retirement by time he hits his 60s.
Assuming average historic rates of inflation and investment returns and a typical affiliate matching contribution in his 401(k) he would wind up with a dwell egg of nearly $2 million by age 65 enough to replace more than 90% of his working income.
I realize that unlike Ms. Spears you may also have student loans to pay back at this point in your life. But unless it’s a private loan don’t free your 401(k) contribution to make extra payments on the give. If it’s a federal loan and you’ve consolidated it you likely have a fixed after-tax rate of 5% or less. Over the longer haul you will handily beat that return in your 401(k); if you get a company matching contribution you’ll trounce it.
And you don’t need to hire a team of people to command your investments. Just put your 8% in a so-called target-date retirement fund - every major finance company offers them including Fidelity. Vanguard and T. Rowe Price.
Here you make your fund choice based on the expected year of your retirement. For instance if you were planning to retire in 40 years’ time you might pick the T. Rowe Price Retirement 2050 fund. Right now it has an 88% allocation to stocks. 10% to bonds and the rest in cash.
As time passes and you get closer to retirement the fund will automatically alter that mix of stocks and bonds to more conservative levels. The best part with these funds is that you do nothing.[ADVERTHERE]Related article:
http://www.shorelinechurch.net/wordpress/2007/11/16/is-britney-shipwrecked/
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