The Power Of Compounding For Building Greater Wealth

by in Personal Finance on Jan 26th, 2015

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.

Compound interest is the most powerful force in the universe.

Compound interest is the greatest mathematical discovery of all time.”

~Albert Einstein (source: quotesonfinance website)

I’ve been amazed at the power of compounding ever since my mom explained the Rule of 72 to me many years ago. This simple exercise shows how long it will take for your money to double at a particular interest rate. Divide the expected interest rate into 72 and you have an approximation of how long it will take for your investment to double at the given interest rate. For example, if your projected return is 9 percent, then you divide 9 into 72 and the result is 8. According to the rule of 72, it will take approximately 8 years for your money to double at a 9 percent interest rate.

More recently – as I see the traditional retirement age coming into view- I’m doing some portfolio analysis to assess our financial picture now and into the future. One of the thing that amazes me is a particular TIAA CREF retirement account I contributed to decades ago when I worked at San Diego State University. I contributed to this account during my ten years of employment and invested 75 percent of my allocation in a diversified stock fund and 25 percent in a fixed option. After those ten years were up, I never contributed again nor did I change the asset allocation.

Several decades later, the account value has increased 6 times. That means if I invested $35,000 during those ten years, that account would be worth $210,000 today. It still amazes me as I write this article how a mere $300 or so dollars per month invested conservatively for ten years grew to a respectable sum. When calculating the annual average rate of return on that account, it was approximately 6.75 percent. This is a very attainable rate of return.

Related: Check out the best robo advisors to help manage your money for a low price.  Read More

Social Security Benefits For Early Retirees

Maximum Social Security Benefits

by in Personal Finance on May 21st, 2012

I recently signed up for My Social Security where anybody can track their Social Security benefits online.  Even though I don’t count on Social Security in my passive income calculations, I still expect SS benefits to be there for all working Americans who contributed to the system.  There would be a civil war if Congress decided one day to stop paying Social Security benefits!

After signing up for My Social Security, I could see the same paper statement form they mail to all of us, but now in PDF form.  Here’s what my benefits say:

* $2,566 a month in benefits at full retirement age of 67

* $3,182 a month in benefits at retirement age of 70

* $1,803 a month in benefits at retirement age of 62

* $1,917 a month for my child or spouse if I die today.

* $2,533 a month in disability benefits if disabled right now!  This is probably the biggest surprise.  What’s really stopping someone from taking a leap of faith if they have health insurance and disability benefits to back them up?

Not enough to live entirely on, but better than mud in the face.  In fact, I just realized this is the maximum Social Security benefits one can receive after checking with a couple other friends who all have more or less the same figures.

The caveat emptor written in the Social Security statement is: “At your current earnings rate, if you were to work until age………”  In other words, what if I can’t continue earning what I’m earning now? Furthermore, what if I want to no longer work and just live off passive income for the rest of my life?  What benefits will early retirees get?

SOCIAL SECURITY BENEFITS FOR EARLY RETIREES Read More

Skills And Time Or Money And More Money?

As one of the younger guys in the office, I hear a lot about retirement planning from people at the office.  Some if it is pretty solid advice like “start saving now or you’ll regret it later”  or “don’t wait till your mid thirties like I did”.  Unfortunately, this is all stuff I already know, so I read articles in magazines and on blogs for more information.   I also have met with a financial planner before, and they all suggested that I would need a very large amount of cash when I retire.

I’d need all this cash to keep myself healthy and take a lot of medicine and go to the doctor all the time.  I’d need a lot of cash to make sure that I’d be able to cover inflation costs and keep food on the table.  I’d need a lot of cash to visit children and grand children, unless of course I wanted to put my grandchildren to work so they can pay for their own plane ticket to come see me.

I’d also need a large pile of cash so that I can stay in my own home as long as possible before I moved to the basement at my kids house.  Clearly, this list is not exhaustive, but it is exhausting.  With so many things to consider and the amount needed to save seeming so large, it’s no wonder that people put it off.  “It will be easier when I earn more money” as they say.

Still A Long Way Out, But Better Plan Now Read More

Losing Sight of The Goal

by in Personal Finance on Jan 17th, 2011

My first “real” career was serving in the United States Navy. I learned a lot of life skills as well as professional ones during my stint. But like many young people, couldn’t wait to become a civilian and get paid for my skills versus my rank.

I immediately signed up for the Naval Reserves and continued my military career earning awards, promotions and moving up on the pay scale in seniority. Those are great benefits for a “part time” job. The trade-off is that at any time part-time could turn into full-time wherever you’re needed by your country.

Benefits Read More

Catch Up Strategies for the Rest of Us

Retirement Is Just A Squeeze Away

by in Personal Finance on Jan 12th, 2011

During my 20′s it was easy to live in the present, only ever thinking of retirement as being a far-off fuzzy “what if” scenario. Colleagues in their 40′s would caution me to start planning for this distant event before it was too late. However, I didn’t take their sage-advice and somehow thought my path would be different, i.e. I’d win the lottery or be swept off my feet by a millionaire. But guess what? I’m now pushing 40 myself and that “far away future” seems to be creeping up on me at light speed.

Yet just because I didn’t plan my retirement early in my career doesn’t mean I’m doomed to eating cat food and pushing around a shopping cart to my card board box home. What it does mean is I need efficient strategies to help me catch-up and get on track to a stress-free retirement, and I need to start NOW.

Getting Back to the Basics Read More

Keeping up with the Joneses? More Like Winning!

by in Personal Finance on Dec 10th, 2010

I ran into something interesting the other week. There’s a tool in a Slate article that shares the average and median income of your neighbors in your zipcode. The information is based on what American Community Survey gathered. I admit, it’s kind of neat to see how you’re doing compared to the neighbors. As I looked at the numbers, I realized there was so much more that wasn’t being mentioned.

Looking at the Big Picture

I hate just looking at income because there are certain factors you don’t know or control. How many of my neighbors are DINKs? How many have kids? What kinds of careers do they have? Dual income families may be making quite a bit more than single income families. There’s another big factor that’s missing from the chart. Expenses are mentioned in it, so you may be missing a huge piece of the puzzle. Your neighbor might be making $75,000/year, but his/her expenses add up to $80,000/ year.

You can, however, you the general information as a tool to motivate yourself and your family to improve your finances. Have you looked into asking for a raise at your current job? Are you looking at starting a side hustle? Read More

Welcome To The Yakezie!

Dear Friends,

Welcome to the beginning of a great new initiative.  Yakezie.com was created after our little group of personal finance bloggers grew to almost 100 in a matter of six months.  Who would have known there are so many like-minded people out there looking to improve their presence and meet new people.  There is no bigger personal finance network in the world than the Yakezie and we should all be very proud.  The amount of collaboration has been incredibly impressive and what better idea than to start a website we can call our home. Read More

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