Myths Vs. Truths: The Truth About Saving for Retirement

Myth: I can save for retirement when my income increases. There’s always more time to invest.

Truth: Time is running out and waiting to invest guarantees you an undignified retirement.

Let’s use the example of brothers Ben and Arthur. Ben decides to start investing just $2,000 per year when he graduates high school. That’s only $166.67 per month. He does this from age 19 to 26 – only eight years for a total of $16,000 invested, and then he leaves it alone.

Arthur decides instead to buy a car and a house and live a little before he gets serious about saving for retirement. He waits until age 27 (the year after Ben stopped investing) and then invests exactly the same amount per year as Ben did. The difference is Arthur invests his $2,000 every year from age 27 to 65 – a $78,000 total investment.

Age	Ben Invests	Balance	Arthur Invests	Balance
19	$2,000	$2,240	$0	$0
20	$2,000	$4,749	$0	$0
21	$2,000	$7,559	$0	$0
22	$2,000	$10,706	$0	$0
23	$2,000	$14,230	$0	$0
24	$2,000	$18,178	$0	$0
25	$2,000	$22,599	$0	$0
26	$2,000	$27,551	$0	$0
27	$0	$30,857	$2,000	$2,240
28	$0	$34,560	$2,000	$4,749
.	.	.	.	.
.	.	.	.	.
.	.	.	.	.
58	$0	$1,035,426	$2,000	$682,859
59	$0	$1,159,677	$2,000	$767,042
60	$0	$1,298,838	$2,000	$861,327
61	$0	$1,454,699	$2,000	$966,926
62	$0	$1,629,263	$2,000	$1,085,197
63	$0	$1,824,774	$2,000	$1,217,661
64	$0	$2,043,747	$2,000	$1,366,020
65	$0	$2,288,997	$2,000	$1,532,183

Both brothers retired at age 65 with a good nest egg, but look at the difference. Ben invested $16,000 and retired with $2.2 million. Arthur invested $78,000 and only had $1.5 million. He ended up behind his brother by $756,814 even though he invested $62,000 more than Ben did!

So if you think you have plenty of time to get with it, think again. Time is on your side if you use it to invest. But if you wait to invest, time is definitely NOT on your side and making catch up contributions late in life is often a case of too little, too late.

070 Financial Excellence: Refusing to Participate in the Recession

Episode 70: Refusing to Participate in the Recession: Dave Ramsey and the Great Recovery; July 26, 2011.

Dave Ramsey has initiated what he is calling the Great Recovery. It’s not about promoting Dave or his company. It’s not about promoting us as financial counselors. It’s about teaching God’s people to manage money God’s way and changing the economy, one family at a time. Today Kevin Suddick and I weigh in with our thoughts about the Great Recovery, Dave Ramsey, and changing the economy.

Don’t forget: Living In Financial Excellence airs LIVE every Tuesday at 10 a.m. CST. You can watch live and join the chat at financialexcellence.net/live-show

Show notes:

Too many of us are still waiting for the government to fix the economy. It’s been several years since the housing bubble burst in 2008 and the stock market crashed. The only thing the government has managed to do about the economy is blame the other political party for the recession.
Government doesn’t fix the economy. Businesses do. We need to stop waiting on the government and start supporting businesses to bring this country out of a recession
We can’t support businesses if we’re worried about the future. Being confident in your future starts with getting out of debt and freeing up cash flow to live with confidence. It also means having an emergency fund in place to handle emergencies when they happen, rather than waiting for the government to help you out.
When you surround yourself with negativity, you become a negative person. Stop listening to the media about how bad the economy is. Yes, the stock market crashed. Three years ago. In case you haven’t heard, the Dow is back to roughly 85% of its pre-crash level. So the people you keep hearing about that lost all that money in the stock market are the ones who were dumb enough to jump off the roller coaster in the middle of the ride. Those who are still on the ride are halfway up the next hill.
The only person responsible for fixing your situation is you. It’s time we stopped whining about our situations and started doing something about it.
Dave Ramsey is calling on churches to start teaching how to manage money God’s way. The amazing thing about doing things His way is that it works! Imagine a community of people making smart decisions with their money, confident in their future, and living a life of purpose by serving others. Broke people can’t help others. Let’s teach the broke people how to not be broke so they can help others by paying it forward!
Join the Great Recovery and make a difference in your community!
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Important Things You Need to Know Before Refinancing

When mortgage rates drop, you might consider refinancing to lower your monthly payment. That’s a smart move in most cases, but it’s not an easy process. In fact, refinancing your mortgage is similar to taking out installment loans for the first time.

If the rate gap is wide enough and you plan to stay in your house for a time, refinancing might be worth the trouble, especially if you can substantially lower your bill. That said, there are a few things to keep in mind when considering a refinance for your mortgage.

Refinancing Is Not Free

Refinancing costs money because it isn’t as simple as asking your financial institution for a new rate and having them give it to you. The bank has to issue a whole new loan.

When you bought your house, you had to pay for closing costs, which included inspection fees, application fees, appraisals, commissions, taxes, points, insurance, and warranties. When you refinance, you’ll also have closing costs similar to when you took out your original loan. These costs typically run between 2% and 5% of your requested loan amount.

Before you panic, keep in mind that you can roll your closing costs into the loan itself, so you may not have to pay them out of pocket.

On the other hand, some banks offer refinances with no closing costs at all. But to get that advantage, the bank will give you a higher interest rate, which might defeat the whole purpose of refinancing.

Do a Quick Calculation

Before you refinance, you want to do some math to see if you’ll actually save money in the long run. To figure this out, you need to decide how long you plan to live in your home. If you want to move in the next few years, you might not recoup the cost of refinancing before you leave.

For example, say your current mortgage payment is $2,000, and refinancing brings it down to $1,800, but your refinance costs you $6,000. To recoup the money it took to refinance your loan, you would have to stay in your home for at least 30 months. However, if the refinance brings your payment down to $1,500, you only have to stay in your house for a year to make the cost worth your while.

So, calculate how long it will take you to benefit from your refinance and decide based on that factor.

Resetting the Clock

When you first started paying your mortgage, most of your payment went toward the interest and not your loan’s principal. But once you have your loan for years, the tables slowly turn, and you begin to pay into the principal, which lowers your overall loan amount.

Refinancing changes your current scenario back to what it was when you first took your loan, and you’ll pay into the interest first again. Before refinancing, ask your lender for a side-by-side comparison of your current loan and the refinanced loan. Using that information, see if you’re happy with the pace of your new loan paydown before making a refinancing decision.

Refinance for Those Better Rates

When you see the Federal Reserve lowering interest rates, you might decide it’s time to refinance your home. The truth is, you might be right. But before you make your final decision, ask yourself some questions and calculate the real cost to you. If you’re happy with the answers, talk to a lender about the possibility because it never hurts to ask, and you just might save yourself big bucks on your monthly bill.