The 75(k) Retirement Plan

     Do you spend $2 a day on coffee, Monday to Friday, the 50 working weeks of the year? Well, that comes out to 250 $2 cups of coffee—$500. What if you invested that in something other than cardiovascular disease? What if you invested that money in something like bonds?

Now this only applies to those who can afford those cups of coffee, and who are unwilling to sacrifice such a small pleasure. They work hard in a stressful job, under paid and over worked. Of course caffeine probably doesn’t help that situation, but common sense isn’t the point here. Let’s switch to the other end of the work spectrum–retirement at age 67. It may be higher in fifty years, but there’s not much short term financial interest in keeping us alive much longer than we do now. It will be easier to raise the cost of those last five years of life that are some 80% of our medical costs over a lifetime.

So, at age 67, retired, could you use an extra $75,000? It may actually only be worth between $45,000 and $60,000 in today’s dollars, but that’s still pretty nice—world travel? taking grandchildren to Disney Galaxy? sailing the coastal waters? This is figured using an inflation rate of 2% or 3%, (only 0.5% on the cost of coffee!) against a low investment return of 4%, for saving the cost of 250 $2 cups of coffee a year from the age of 20. Current inflation is about 1%, of course, but it will rise, and equity returns average well above 4%, if you don’t cash out in a crash cycle. And yes, if you saved twice as much, it would grow to twice as much. Also remember, this is on top of your Social Security and/or other retirement account income.

The coffee you buy today may be a good short term solution, but it has a short term effect, measured in hours at best. Your needs for advanced years are long-term needs. They are real and will be measured in years. You have three choices there: poverty or near it, working until you drop, or planning ahead starting now. You choose. It matters. It’s your life.