How Your Decisions Can Affect Your Future
How Your Decisions Can Affect Your Future by
Robert Westervelt -Personal finance involves making decisions that will impact your future – hopefully in a positive way. While you can’t predict the future, a little knowledge and a comprehensive financial plan will go a long way in helping you navigate the financial road of life and make the best decisions possible.
I was speaking with a friend of mine a few weeks ago who has been working towards buying a house for some time now. He told me that he was finally in a position to move forward and planned to purchase a home within the next six months. When he told me that both he and his wife were going to liquidate their 401k retirement accounts to use as a down payment, I immediately started thinking whether this was the best decision for them.
At a time when many middle-income Americans are not adequately preparing for retirement, this decision to basically start over seemed very risky. Both my friend and I tend to be more on the analytical side so I decided to take a few minutes and put some numbers together to look at the possible future consequences of their decision.
He, 38, and his wife, 42, had approximately $100,000 in their 401k accounts. At an average 10% rate of return, this $100,000 would grow to almost $1.8 million by the time he retires at 67! Even taking a more conservative 8% rate of return would yield over $1 million. Ultimately, liquidating their 401k accounts could cost them between $1 and $2 million at retirement!
This is assuming that they did not do anything to make up for it. But how many people do you know who, after purchasing a new home, have money left over to spare? In order to make up for this potential retirement shortfall, they would have to start saving an average of $800 per month until he retires, depending on the rate of return. Over 29 years they would have to contribute almost $300,000 extra!
Are they making the best decision? Who am I to say. It basically comes down to what is important to them. But, I wanted to make sure that they went into it knowing what possible consequences their decision could have. The bottom line is that you need a personal financial plan so that you can make sure your current choices and decisions do not hinder you from reaching your future financial dreams and goals.
Robert Westervelt has been doing financial planning for the past few years with a desire to help people get out of debt and achieve their financial dreams and goals. Most recently he has started a website http://www.easyfinancialplan.com to help families start developing their own personal financial plans.
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