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The following was published in PSAP News, a newletter for N.C. Telecommunicators.

Retire Rich

Rik Rasmussen
Communications Maintenance Administrator
City of Durham
hrasmussen@nc.rr.com

June 14, 2004

In February I talked about how YOU have the power to retire rich. I said that if you manage your 401k, you could accumulate a very tidy sum for yourself, and do it with little effort.
So why do so many people NOT actively manage their 401k?

1. It is too complicated.
2. In the long run, it will not make any difference.
3. It will not accumulate enough to be worth my time worrying about it.

Accumulating wealth IS easy. What is NOT easy is getting started.

There are plenty of web sites that have calculators that can tell you how much you will have for retirement at the end of so many years based on how much you put in, and what you guess the annual return will be. A good one is here: Bloomberg Retirement Calculator, it was used to create the chart below.

Let’s say you are 25 years old, recently began working as a Telecommunicator and have just enrolled in the 401k. You like the work, plan to make it a career. Fine, but how does the idea of retiring a MILIONAIRE sound to you? Let me show you how easy it is.

You can try this example at the web site I mentioned. Then have fun playing with the numbers, and thinking about the great life you can have with that money.

Your Current Age 25
Expected Retirement Age 65
Current Amount in Fund $ 0 (you just started, remember?)
Expected Annual Rate of Return % 15% (no, that is NOT unrealistic, more later)

Calculation give us:

Current fund Amount:
$0.00 < <<<<<<<<< you start with this

Total fund Amount:
$1,000,000.00 <<<<<<<<<< you end up a millionaire
Interest: 15% at this annual rate of return

Annual contribution:
$562.09 you only have to put in this much each YEAR!

Age to reach your goal:
65 Sounds old to you now, but trust me, it isn’t.

Watch how your small contribution grows:

I know that sounds too good to be true. Only $562.09 per year? Yes, but it gets better.

Let us say you make $25,000 per year and your employer contributes 3% of your pay to your 401k. That is $750 per year and you didn’t contribute a dime! Put $750 in the example above and you end up with $1,334,317.73!

But, lets suppose you decide to also contribute 3% of your pay, now you have $1,500 going in each year. Plug that in and you end up with $ 2,668,635.46!

Think that is as good as it can get? No it isn’t. If you make $25,000 per year now, and get a raise each year, and continue to put in 3% of the new, higher salary each year, you will be contributing much more in later years. You would easily pass $3,000,000!

The choice is yours, I have shown you how reasonable the contribution can be and how VERY rewarding it can be. All you have to do is sign up, have the contributions withheld and sit back and watch it grow.

But, what about that 15% annual interest, is that realistic? Well, in 2003 if you had your money in the OPMSX fund that is in our 401k on March 21 and left it there until the end of the year, it would have made about 50%! I grant you that will not always be possible, but 15% is a reasonable expectation for an average year over the long haul.

Just keep an eye on your 401k. Move your precious money to the money market fund during periods of decline. Go back to the small cap fund when the markets are doing well. This will help keep that annual yield as high as possible, No need to give back what you have already earned during a downturn.

Retire rich, live well, you deserve it.