Wisdom of Rich Dad

Robert Kiyosaki

Years ago I had a conversation with a young man about 401(k)s. “I have a question for you,” he said. “I’ve read that you say 401(k)s are the worst investments, but I don’t understand why you say that.”

“What is it that you don’t understand?” I asked.

“Well,” said the young man. “Most employers match your contribution. For instance, my employer matches up to four percent of my salary. Isn’t that a hundred percent return? Why is that a bad investment?”

“It’s a bad investment,” I said, “because it’s your money to begin with.”

He looked puzzled and perplexed.

“Listen,” I said, “if it weren’t for 401(k)s, your employer would have to pay you that money as part of your salary. As it is, they still pay it, but only if you give up four percent of your existing salary in to a retirement account where you have no control. And if you don’t, well the employer comes out ahead. It’s your money, but they’re in control.”

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Considering retirement savings when you are twenty-something is a concept that seems so far into the future, it is almost unreal. Most twenty-somethings are busy finishing school, paying off student loans or saving for a little slice of the American Dream.

Especially today, when college is expensive, jobs aren’t that easy to come by and most Americans are worrying about keeping their head above water, the last thing most young people are worrying about is saving for retirement.

The Scary Truth About Generation Y and Retirement

Generation Y is a general term used to define the group of people in society under 30, who are just entering the workforce and starting to pave their way towards a career.

Every generation has a different view on work, life and the world. This view is often largely molded by the environment and society.

According to CNBC, more than 50% of those in Generation Y have not started to save for their retirement. It seems that while this generation does know the importance of saving money and is very aware of the state of the economy, this fact has not changed the general view on saving for retirement. Many young adults are of the opinion that they can start saving later in life so they won’t worry about it now.

We live in an age of immediate gratification. The immediacy of everything from music to cash has created a generation that lives for now, rather than prepares for later. While this philosophy on life is one view, it can be dangerous when it comes to planning and saving, specifically for retirement.

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Retirement isn’t impossible for most of us, but we often get so wrapped up in navigating our busy schedule that we unknowingly sabotage our own retirement. Look into these five specific areas of your plan to see if you are doing harm to your goal of a comfortable retirement

Not negotiating better pay during the hiring process. In this economy, it’s easy to be grateful for even having a job. But you are definitely short changing yourself if you don’t negotiate for higher pay once an employer presents a job offer. A higher starting salary sets you up for bigger paychecks down the line because most raises are calculated as a percentage of your current pay. The worst an employer can say is no. And unless you are very rude in your negotiations, it’s highly unlikely that an employer will take their original offer back because you asked if there is any room for improvement.

Working less than 35 years. You could be drastically cutting your Social Security checks without even knowing it if you decide to retire early. Your Social Security checks will be based on your 35 highest annual salaries. If you work less than 35 years, you get a zero averaged in for each year that you didn’t work. And it’s usually a good idea to work even more than 35 years to cancel out unfortunate years that you didn’t work much due to layoffs or your lower salary at the beginning of your career.

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(Money Magazine) — Question: Everyone talks about ‘the number,’ but what does it tell you? – ROBERT C., Los Gatos, Calif.

Answer: Ah, the number. Books have been written about it. ING has designed an entire ad campaign around it. And an assortment of online calculators will help you figure out yours — that is, the savings you’ll need to amass by the end of your career to generate enough income beyond Social Security and pensions to retire comfortably.

But while the obsession with this figure is somewhat useful — it is good, after all, to have a goal — there are better ways to determine if you’re making progress toward a secure retirement.

To arrive at the number, you estimate how much income you’ll need to maintain your standard of living after you retire — and how long that income must last. So the number for a 55-year-old who earns $150,000 a year, plans to retire at 65 on 80% of his salary, and wants that income to last until age 95 would be $3,136,687, according to ingyournumber.com.

A moving target

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If you walked into the average bookstore, you’d think that women rule the roost when it comes to personal finance. From Suze Orman’s now-classic Women & Money: Owning the Power to Control Your Destiny to the more recent (and more colorfully titled) Bitches on a Budget, there’s no shortage of do-it-yourself financial advice tailored to women.

Apparently, though, when women make the momentous move from self-help to seeking professional advice about investing and retirement, things go rapidly downhill. A recent study by the Boston Consulting Group revealed that women perceived themselves as receiving wealth management services at a level of quality that is inferior to that received by their male counterparts.

According to the study, women are the key decision-makers when it comes to 27% of the wealth worldwide: that’s $20 trillion! But despite the massive chunk of power they wield, 55% of the women surveyed in the study said they felt their wealth manager could do a better job of advising them. Almost a quarter of the respondents said private banks needed “significant improvement” in the services they offer to women.

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In one way or another, we’re all thinking about retirement – saving our money for a bright future of exploring and reading and meeting new people. We’re aggressively watching our investments and cutting back on non-essentials, in the hopes of catching a piece of the pie someday. But what is it – really – that we’re hoping for? Are our expectations realistic, and where have we learned what to anticipate when we leave the workforce behind?

Hollywood

One word: Hollywood.

Since TV and movies became a popular source of entertainment, we’ve been fed idea after idea of what our retirement years should look like. We began anticipating our golden years as hassle-free and cash-laden. But it’s rare that spoon-fed morals and focus group decisions are truly representative of real life. Exposing these Hollywood clichés will hopefully bring the reality back to retirement.

Cliché #1: You’ll Live On A Beach-Front Property (As seen in “Office Space”)
Mojitos on a sunny beach-front property with a deck overlooking the ocean, as a reward for years of blood and sweat - this is how retirees are often represented on film. And the worries of civilian life are long left behind. The only real concerns are which pair of white beach pants to wear, and ensuring that the blender is still working.

But the reality is that, with the housing and lending markets in current disarray, we’ll be hard-pressed to keep our own homes – never mind those on facing the Pacific sunsets.

In actuality, soon-to-be retirees are clamoring to hold on to their current properties or – more commonly – considering downsizing, in the hopes of using any profit made from a house sale as expendable income.

Rural and isolated areas may become harder to come by, as condominiums and shared accommodations become the norm for retirees. Oh, you can still have that mojito – but there’s a greater chance that you’ll be sipping it on your 17th-story balcony watching the police direct traffic below.

Cliché #2: The Gold Watch (As Seen In “About Schmidt”)
We all want to be appreciated. And after 20, 30 or even 40 years with a company, it’s fair to expect some recognition – a dinner, an office party or even the overused cliché of the gold watch. We’d all like some form of appreciation for years of honesty and dedication.

But the reality of the matter is that the length of careers is becoming shorter and shorter by the year. Even Baby Boomers aren’t lasting in their workplaces as long as their parents or older siblings did – a 2008 survey by the Bureau of Labor Statistics revealed that those born in the later years of the baby boom averaged about 11 jobs between the ages of 18-42, while the older generations averaged five or less. And with shorter career life spans comes less incentive for large-scale recognition.

While we won’t have statistics on the current generation’s professional life for quite some time, if the labor markets continue down this road you’ll be lucky to get a handshake when you hit 65. (Even if the economy is unstable, don’t worry.

Cliché #3: Shot Three Days Before Retirement (As Seen in Any ’80s Action Movie)
For some, this may seem like a great escape – for others, the ultimate cop-out. But the cliché of not having to face retirement at all is becoming less and less likely. The truth is the length of life expectancy has been growing consistently for generations.

In the U.S. in 2010, the average life expectancy is currently 78.2 years – 75.6 for men, and 80.8 for women. That’s almost 10 years longer than just 50 years ago, and almost 15 years longer than the age most people expect to retire (65). And let’s not even consider colonial times, when life expectancy was reportedly only 45 years. Try building your Roth IRA for that one.

So, even when you throw yourself a retirement party with the three friends you have left, in your one-bedroom condo, it might be a good idea to keep the want ads nearby – you never know when you’ll need a little part-time supplementary income.

The Bottom Line
While the concept of a traditional retirement – or even a glamorous one – is not dead, it does take a more aggressive approach on your part. As has been said many times, the key to a strong retirement nest egg is to start saving early and be unforgiving in your dedication to making that pot grow!