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Tip #4 “It’s Not How Much You Make, It’s How Much You Keep.”

Black woman putting money into savings jars

Source: JGI/Jamie Grill / Getty

What if you where told at the start of your career that you would earn $1,750,000.00 over the next 50 years and that you would earn another $500,000.00 after retirement by age 85?  A breakdown is as follows for 65 years of earnings (a life time).

An average earning of $34,615.00 per year X 65 years = $2,249,975.00 over a lifetime.  In this example, you start working at age 20 and continue for the next 50 years. As most are aware, very few of us earn $34,615.00 consistently throughout our working career.   For most, it’s more like $17,500.00 divided by 2,080 (the number of hours in an average work year), which equals a starting hourly rate of $8.41.  This is a simple example to show your earning potential over the course of a lifetime.

Once retired your income will be reduced. You will more than likely receive income from Social Security and perhaps investment income and pension, although pensions are becoming extinct for most Americans leaving many to live on Social Security income only.

Social Security is based on the average of your 35 highest years of earnings. All other years of working will not factor into your social security average.

So, you have managed to earn $2,249,975.00 over a lifetime. How much did you actually keep?

Here’s one way for you to keep more. Defer part of your earnings through a savings plan at work and by all means seek the assistance of your financial advisor. Advisors call this method  “out of sight out of mind” savings.  You can put as little as 1% of your earnings into a retirement plan or up to $18,000.00 a year.  These savings are tax deferred which means you don’t have to pay taxes on this money until you use it during retirement.

If you are age 50 or older, you can contribute an additional $6,000.00 a year. That’s up to $24,000.00 tax deferred until you retire or turn 70 1/2 years old.

Other forms of savings outside of your employment are IRA (Roth or Traditional), SEP, and SIMPLE plans for individuals and KEOGH Plans for small businesses.

Some of you are wondering what should my answer have been when asked how much did you keep? Well, that is relative to what value you place on assets as a security instrument. Some assets increase in value while others depreciate in value.  You may also consider charitable contributions or giving to family members and others.  Your spending choices over a lifetime will determine your legacy value.

Homes, cars 🚗, cash 💰, and various investments will increase your value which we shall refer to as your net worth.

My goal for tip #4 is to have you plan ahead to envision what age 85 could look like for you. You and you alone have the power to shape your future.

For more information visit our website at www.elewealth.com or call our office for a complimentary consultation

Securities offered through ELE Wealth Advisors, member FINRA.  Advisory services offered through ELE Advisory Services, LLC.  ELE Wealth Advisors  and ELE Advisory Services, LLC are affiliated through common ownership and control.

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