Monday, January 13, 2014

Save money in 2014 using the snowball effect

How much money would you guess is held in the collective retirement accounts of everyone throughout the United States? Billions? Trillions? I recently came across some data from the Investment Company Institute that answers that question. I thought my readers would find it quite interesting. I know I was surprised at the amount.

The ICI is the investment company industry’s primary source for statistical data and research on investors and retirement plans. According to their research, as of September 30, 2013, the total value of retirement assets in the United States was $21.7 trillion, which accounted for 34 percent of all household financial assets.

$21.7 trillion is a staggering sum of money. Especially when you consider that taxes have not been paid on most retirement dollars. In other words, there’s roughly $5 trillion in future tax revenues that Uncle Sam is waiting to scoop up.

Unfortunately, it probably won’t do Uncle Sam much good. More than likely, it’s already been spent before it ever lands in the government coffers.

Exactly where can this $21.7 trillion be found? In Individual Retirement Accounts, defined contribution plans, government pension plans and private sector defined benefit plans.

The largest amount, $6 trillion, is held in Individual Retirement Accounts. In the category of defined contribution plans, which includes 401(k) plans, there’s $5.6 trillion, of which an astounding $4 trillion is in the 401(k) plans. Nearly 60 percent of the $5.6 trillion is invested in mutual funds.

In the pension category, federal state and local governments account for $5.4 trillion, while private sector defined benefit plans held $2.9 trillion. If you’re doing the math, annuity reserves outside of retirement accounts accounted for the other $1.9 trillion.

The bottom line is that there’s a lot of money in our nation earmarked for retirement. And every one of those dollars needs to be watched carefully and managed prudently. That being said, everybody has to start somewhere.

So, where should you start? Well, consider that an enormous snow boulder begins with a small snowball. If you don’t have any money in this staggering sum, or if you want to increase your share of the pot of retirement dollars, let me suggest two relatively simple ideas for 2014.

Only two things are needed. The easy one is a bucket or piggy bank. The difficult one is dedication.

One plan of action is flat line saving. That simply means you save a specified amount every week throughout the year. For example, by routinely saving $25 a week, believe it or not, you’ll have $1,300 by the end of the year. And that’s not counting any interest.

Another idea, one that requires you to keep an eye on the calendar, is to save the amount of dollars to match the week of the year. For example, for the first week of January, you only have to save $1. That’s easy! And so is saving $2 for week number two.

By week 20, you’re saving $20 and by week 40, you’re putting $40 into the piggy bank. Surprisingly, this method actually surpasses the $25 week routine because at the end of 52 weeks you’ll have $1,378 in savings.

You have to start somewhere and these methods are simple. Small amounts can grow into significant amounts. It simply takes dedication.

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