Retirement – Can it really happen?

Scriptures: Numbers 8:24-25; Mathew 6:31-34; Ecclesiastes 11:2

When should I start saving for retirement?  Should I be debt free before I start?   Is retirement even a part of God’s plan for you?  How can you be sure that you will have enough to cover your needs as you get older? 

The short and sweet answer is as soon as you can!  To save your money in an IRA, there are some rules (age 18 and must have earned income) that you have to comply with in order to take advantage of tax benefits.  I don’t plan on discussing these tax topics in this article, but you may be asking: what are the advantages to saving earlier rather than later? 

The simple answer here is compounding or should I say the power of compounding.  When you place money in a savings account it will collect interest.  This interest is typically posted to your account monthly. The following month, you will have not only what you deposited but also the interest that was deposit by the bank and so that at the end of the second month you are collecting interest on the sum of these two amounts, and so on. This is compounding; your initial deposit plus all of the interest is always collecting interest.  Sort of like a snowball rolling down a hill continually collects snow. 

When you open a savings account in a bank, you will see two rates of interest; the interest rate that is applied monthly and the APR or the Annual Percentage Rate.  The APR is the equivalent interest rate if all you received was interest payment once per year, rather than monthly.  So, the APR will always be higher than the monthly interest rate. 

Note: You should always check to see when the interest payment is posted to your account.  Some accounts post monthly and some quarterly.  If the interest is only posted quarterly, the APR will be lower. 

There is a classic example that demonstrates compounding.  Two investors choose two different savings strategies. 

·         Sally starts saving at age 21 and saves $1000 per year for eight years and then stops. 

·         Bobby starts saving at age 29 and saves $1000 per year for 37 years. 

·         Both examine their savings account at age 65, both of which were collecting 10% interest (yes I know that you can’t find this rate today but this is an example). 

·         Who has more money?

o   The answer is Sally!  She has $427,451 in her account and she only invested $8000.  Bobby has $363,043 and invested $37,000. 

o   This is the power of compounding!

Bottom Line: Start saving for retirement as soon as you can!

Though, the very tough question to answer is: How much money should I save for retirement?

Realize there are many factors that go into answering this question, such as:

·         How long will you live past 65?

·         What will inflation do to the cost of living and consequently to my savings?

·         Will you be healthy in old age or will you have costly medical expenses?

·         How much do you think you will spend each year?

·         Will Social Security be around to supplement my savings?

·         Will Social Security raise its retirement age beyond 65 like some European countries have done in their programs? 

·         If I can still work, how long could I work? (Is Wal-mart still hiring greeters?)

And with so many unanswerable questions, how can you know for sure?  Bottom line is that you can’t know; you can only estimate your needs and plan accordingly. The current estimates are that most people would need somewhere between $1 and $3 million dollars to retire.  And I suspect that these estimates are assuming that Social Security does not factor into your income, since many believe it will be defunct at some point of time in the future.

Given these estimates for how much you need in your retirement savings, again, the bottom line is to start saving as soon as you can so that you can leverage the power of compounding.

Another question that many people ask is:  Should you save when you are in debt? 

I will say yes, but with conditions. You must have a budget that demonstrates that you are spending less than you earn and have benchmarked your budget against reasonable spending habits.

For example, most people don’t buy their first home with cash and so you will have a mortgage.  If this family is living within a reasonable budget and can still set money aside to save for all of their short term debts, then yes by all means, save for retirement. 

But if you have credit card payments where you are paying high interest rates (typically 18% and higher), I would suggest that you seriously consider eliminating this debt before you start saving for retirement.  Yet, if your income can handle the interest payments, you can save and pay those high interest payments too.

Notice that I’m suggesting that your budget should always allow for retirement savings, even though you may have some debt.  Again, it comes down to how well you have constructed (and live by) your budget. If you can plan for the expenses associated with debt, you can actually do both.  But I will leave that to you to decide if that really makes sense. 

Now let me take a step back and ask: Is retirement a Scriptural concept? 

Well, actually, not really, at least for most of us.  When you read Numbers 8:24-25, it was only the Levites (the priests) that were allowed to retire.  Everyone else was expected to work.  Nowhere else in the Scriptures does it suggest that retirement is an option or a path for any of us who are not in the business of preaching or teaching. 

So, if we are not to retire, then why do we need to save for retirement? 

Let me suggest that you are not saving money for retirement but to create career options when you chose to leave your current (secular) job.  That is, many of the career options for doing Kingdom work do not pay very well.  (This is unfortunate in and of itself.) If you have a heart for missionary work or even working in a para-church ministry, then you may want to be saving money such that you can augment your new salary with the savings you have accumulated.  In this, you keep working but are not hindered by your financial condition. (Imagine what could be possible if there were more Kingdom workers!)

Lastly, I will leave you with some questions.  Should we, as Christians, depend on the government for sustaining our needs as we grow old?  What role does God play in our last stage of life in this world? Please do consider Mathew 6:31-34.

For more information about retirement, check out these articles at Crown Financial Ministries. 

Benchmarking Your Budget

Scriptures: Luke 14:28-30; Prov 16:3

Do you spend too much money on food?  Clothes? Your home?  How much money is appropriate to spend on such items for a family your size?  Is there a way to know if your spending habits need some adjustment?

One of the first insights people make when they start looking at their budget in the context of their overall income is that they are spending too much money in one area. For many people, eating out is an area that is often the big surprise. Those gourmet coffee houses do charge quite a bit for a cup of joe!

But let me take a step back here and answer the question: Why should I do this in the first place?  

You may be facing the crisis of cutting your spending in your budget. Maybe it’s because you haven’t been making all that overtime or that you lost your part time job.  Whatever the reason, you have to cut your spending and so you need to start looking for ways to do that in your budget.  The best ways of doing that is to know where you may be spending more money than normal or should I say as compared to others (the essence of benchmarking).

Another answer may be simply that you are searching for ways to spend less so that you can save more or to pay down some debt.  Again, comparing your spending habits to others is a great first step to adjusting your budget.

Lastly, I will mention that every well-run company (even a church) uses benchmarks to evaluate their business.  After all, a company that doesn’t manage their expenses well usually isn’t around tomorrow. So, in many ways, your expenses should be managed in the same way because you don’t want to find yourself in so much financial trouble as to declare bankruptcy.

And so, the math is really simple.  Just take the amount you have budgeted (or the amount you currently spend on a budget category) and divide that by your available discretionary spending money.

For example, say you have, after taxes and tithe, $50,000 in discretionary money. And you want to benchmark your housing costs.  If you spent $20,000 on your housing expenses, you spent 40% of your budget (20,000 divided by 50,000) in this category.  Note that it is important to know what is to be included in each category or, if you will, how it is defined, before you start your comparisons.  You don’t want to leave out or include an amount that isn’t in the number you are comparing yourself with.

Typically included in the Housing category are: the mortgage/rent, utilities, insurances (home or renters), maintenance, and any major furnishings that are expected to be purchased in a year that would stay with the house (e.g. dishwasher).  When you add all of these items up and compare yourself to others, you may discover that you are spending too much in this category.  (Note this is a hard one to fix because you may have bought a house too big for your income and therefore not easily reduced by spending less.)

Entertainment/Recreation is another area where you may discover you are overspending as compared to others.  Items to include here are:  vacations, camping trips, sports (events & equipment), movies, videos (rental & purchase), cable TV, Internet access, pets and eating out.  Obviously, if you are overspending in this area, spending less is easier, even though you may not want to. 

Savings is an area that you may not even be budgeting for!  Remember, savings are nothing more than future spending.  If you expect to spend money in the future, you should be saving.  And I am not just talking about retirement.  I also include that car insurance payment you have to make in six months as future spending.

The overall objective in this exercise is to balance your budget in such a way as to be spending your money as a good steward would, given the same circumstances.  These circumstances are associated with your family size.  For example, are you a single parent or a family of four?  Each family comes with a different set of circumstances

Now, go and get your budget and calculate these percentages.  Then compare your spending/budget to others by checking out Crown Financial Ministries’ benchmarks for a family your size.

Singles         Single Parent           Family of Two (Married Couple)   

Family of Four         Family of Four (High Housing Cost Area)          Family of Six

When you identify an area where you should be spending less (your percentage is higher than the benchmark), establish a new budget amount that is aligned with the benchmark amount.  If there are categories where you should be budgeting more money (e.g. savings), you have to take that money from other categories. It’s that simple – at least on paper.

Now before you say that you can’t spend less in one category versus another, I will challenge you by asking: Really?  (Note that I am not challenging those facing medical issues or circumstances beyond their control.)  There are always ways of spending less money in a category of your budget. What you may not like is doing so.  And here is when you have to ask: Is this an attitude problem (heart issue) or not?  Again, no one likes being challenged this way but if changes to your spending are called for, you have to go down this road.

Bottom Line:  Benchmarking your budget is great way of evaluating your spending plan to others who successfully manage their income.  And who wouldn’t want to do that?

Now I don’t normally speak to the tithe but I feel compelled to do so since it is critical to the benchmarking process, not to mention that it’s a benchmark percentage as well.  The benchmarking process starts with your discretionary spending amount; your discretionary money amount is your gross income minus your taxes and tithe.  Please be sure you carefully examine your tithe amount before you begin your overall benchmarking.  For a higher amount in your discretionary spending will yield lower percentages in each of your budget categories, suggesting you may be in line with others who tithe at a higher amount than you.

Statistics show that evangelical Christians only give 2-3% of their gross income to the church.  What good would happen in God’s Kingdom if Christians gave more to their church?