From the Extension Small choices can lead to big savings

Are you leaving money on the table?

Recently, the blog DoughRoller grabbed my attention with an item about compounding. The premise was that long-term reduced spending increases retirement readiness. I know you want to turn the page, but stay with me. This applies to each of us at any age.

When I counsel people about their finances, my focus isn’t so much about income as it is about spending awareness. The blog discusses a small change such as modifying a cellphone package or cable television package that would save a person an average of $80 per month. During the course of 50 years, that amounts to $48,000, and that’s without factoring in future value or interest accumulation/return on investment. If that $80 is invested regularly and achieves an average return of 8 percent annually, that $48,000 balloons to $638,000 during that 50 years!

Even if you cut the 50 years in half, the point is that modifying a single spending habit, investing your savings, leaving it alone and letting interest do its work will make you more financially secure.

Often we hear that a person needs $1 million to even think about retiring in today’s world. This is disheartening to many who won’t reach “retirement age” for another 20 years. While raising a family, paying off student loans and starting a career, what’s left for savings?

In addition to making the most of small savings, here is another concept to help make retirement seem more financially realistic.

Look at Social Security as a personal, fixed annuity that you are accumulating. A fixed annuity is money you set aside to draw up later in fixed amounts. These annuities pay out a series of equal payments over a specified number of years.

Social Security may change in the coming years, but it will always be there. Instead of looking at what you might draw from Social Security monthly, look at that large chunk of dollars as part of your overall retirement package – part of the million needed.

An important note about Social Security: For those baby boomers looking to draw on it soon, realize there are many variables. Be sure to look at all your options before using it. I am beginning to realize that many people are losing money when managing their Social Security.

Here are three facts to keep in mind:

If you wait until you are “of retirement age,” according to Social Security, you can draw with no financial penalty.

Many people don’t realize that a divorced spouse, who was married at least 10 years and has not remarried, can draw 50 percent of an ex-spouse’s retirement.

If you start drawing at 62, you have locked out any potential improvement.

wendy.rice@colostate.edu or 382-6461. Wendy Rice is family and consumer science agent for the La Plata County Extension Office.

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