The need for money in retirement

Many people save money by just leaving it in a savings account at low interest or perhaps no interest at all. Why invest? These same people say that they could lose all or part of their money. We’ll talk today about the importance of investing and why, sometimes, doing nothing is worse than doing something. The definition of saving according to the Merriam-Webster Dictionary is:

Definition of saving

 (Entry 1 of 3)1: preservation from danger or destruction : DELIVERANCE2: the act or an instance of economizing 3 savings plural: money put byb: the excess of income over consumption expenditures —often used in pluralc: a usually specified lower cost —often used in plurala savings of 50 percent .

In other words, putting money away for retirement or a rainy day. This is where the problems starts to occur. We discipline ourselves to save and put money away but it’s not enough. Why?

Inflation

It’s not enough to save because you need to make it grow. The reason is that there’s a thing called inflation or better known as cost of living. It increases ever year. It’s what makes things cost more and more. In fact, Inflation Rate in the United States averaged 3.27 percent from 1914 until 2018, reaching an all time high of 23.70 percent in June of 1920 and a record low of -15.80 percent in June of 1921.(1) Thus, the importance of why to invest.

What you don’t know will hurt you

We all know that life costs more than it use to. Whether millenials are worse off than Babyboomers is a debate by itself. However, let’s look at it another way. Your purchasing power. If I have $1000 today, what will it buy me in 10 years? This is where what you don’t know will hurt you. People sock away money in low rate savings or leave it in a chequing account which gives no interest all. Let’s say in 1970 you had saved $6101.44 and just left it there. What would the purchasing power of that money be in 2014? The answer is $1000.00. Yes, you would still have the same amount but it’s buying power would be much less.(2)

Alternative

So what do we do? The answer is to invest it. If you’re looking to save for your retirement, the best thing is to have a plan. The next thing to do is to make sure that investment you’re putting your money into is beating inflation. If your savings account 1% and inflation is 2%,(1%-2%=-1% (or negative growth)) then you are going backwards. Therfore, look at the trend of the investment and make your decision. Investing doesn’t have to be complicated. Make it simple and have a long term view.

Traumatic events

There is no denying that recent events like 2001, 2008 and 2018 where the markets have dropped 20% or more can be stressful to say the least. We must keep in mind the larger picture if we wish to attain our goal. If history has taught us anything it is in the long run, 20,30 and 40 years, those who invest will be richly rewarded,

Why invest – Conclusion

• Retirement
• Just saving doesn’t cut it
• Inflation
• Buying power
• Long term view

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Rich Simply

(1) https://tradingeconomics.com/united-states/inflation-cpi

(2) https://www.buyupside.com/calculators/purchasepowerjan08.htm