Thursday, July 3, 2008

I'm an Automatic Millionaire!!

No, I didn't win the lottery. I just read a book. For free at the library. It's David Bach's The Automatic Millionaire. I've read a couple of reviews of this book at other PF blogs and it basically sounded to me like it said what all other books on personal finance said:

1. Save early, save often
2. Stop spending money on unneccesary things
3. Live below your means
4. Invest

So I didn't think I needed to read another book. But I am really glad I picked it up. Here's why:

I reguarly counsel my friends to start saving for retirement. "Max out your 401(k). Start a Roth IRA" and on and on. I'm like the broken record of retirement savings. I've even had "the talk" with my parents about their future. But I haven't been practicing what I preach! And why, ok, there are two reasons:

1. I have a pension (yes a real live pension!).
2. I thought I couldn't afford to save more.

One of the great things about my job is that I am paying into my future without even meaning to. Three percent of my income is gone, POOF, before I even knew it was there. After 5 years I will be vested in this system and they will stop taking out the three percent. After thirty years of employment I will retire with 60% of my final average salary. After twenty it's 40%. Will I stay at this job forever? Not bloody likely but I'm planning on staying in the "system" of government employment for the foreseeable future.

So, what do I get for 38 years of state service? A whole friggen lot actually:

"Your projected annual Single Life Allowance will be 72.0% of your final average salary (FAS). Using an FAS of $240,498, your annual service Single Life Allowance would be $173,158."

Now, that's just a projection, but knowing that made me content and not too focused on saving anything else.

But reading The Automatic Millionaire made me realize I should save as much as I can for the future. Who knows if I'll stay with the State? Who knows if their projected Final Average Salary is correct? How much will $173,158 actually count for in 38 years?

Very similar to a 401(k) New York State offers a Deferred Compensation program for state employees where you can contribute a portion of your salary pre-tax. There are posters everywhere. There are sign up festivals with free giveaways. I have never signed up. Until now!!!!

Just like David Bach said, I decided to pay myself first and called my benefits office. As soon as I mail the paperwork I will be contributing 7% of my income to my retirement!!! In addition to the 3% already taken out for my pension, I am saving a grand total of 10%!!!

Here's what this money will look like when I retire assuming I continue to contribute 7%:

And that's assuming I never get a salary increase, which I know I will. Almost a million dollars!

AND the impact on my paycheck is only $88!! No longer can I say "I can't afford to save" or "I can't wait until I have some money to save!" I finally started saving by making it automatic.

I really want to implement other ideas from the book as well. I dont' agree with EVERYTHING he has to say (like you don't need a budget, ha! has he met me?!) but all in all, I'd say it's a great read.


graduatedlearning said...

it's kind of wild to realize how important starting early is. The problem I have with those calculation applets is that I'm never sure what to put for things like "annual rate of return", since I have no clue how the market is going to behave.

Oh well, even if I were to be stashing the money away under my mattress, putting that money away every month would really add up!

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