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The Safe Road to Building True Wealth

Written By Brian Hicks

Posted June 8, 2011

Fear makes for a troublesome bedfellow.

That’s especially true for today’s retiree crowd.

Faced with few options and little precious time, today’s older set is finding out that retiring is more difficult than any of them might have imagined in their younger days…

Between the collapse of home prices, a volatile stock market, and the grip of a quickly-rising cost of living, many in the older generation have awakened to find themselves between a rock and a hard place.

As a result, 20% of workers now say they intend to retire later than they originally planned. These folks are hardly alone.

The most recent data from the national Retirement Confidence Survey shows American confidence in the ability to retire comfortably has plunged to an all-time low. Given the current economic malaise, just 13% of workers now believe they will have enough money with which to live comfortably throughout their retirement years, while a full 50% go to bed every night wondering how it will all work out.

And the truth is these fears aren’t imaginary. More than half of these workers — 56% — have less than $25,000 in savings and investments. Even worse: That figure includes a full 29% who have less than $1,000 in retirement cash.

Needless to say, that amount is going to come up far too short, leaving these cash-strapped seniors with some tough choices.

“About 45% of Baby Boomers will run short of funds in retirement; they do not have sufficient assets to last the rest of their lives,” says Jack VanDerhei, director of the Employee Benefit Research Institute.

Forget “Magical Thinking”

As for counting on Social Security to help fill the gap, you can file that one under “magical thinking” — right between the Tooth Fairy and the pot of gold at the end of the rainbow.

Even under the current pay-out system, Social Security only replaces 16% of what you used to earn (for married couples earning between $50,000 and $100,000 a year), and a mere 9.5% of income for those who earned over $100,000 a year.

You don’t need to be a genius to see how that will leave many folks with a lifestyle gap they may find hard to swallow…

To make matters worse, Social Security trustees reported last month the government pension system will run dry in 2036. That’s the government’s own estimate; others believe that day could actually come 10 years earlier.

Future recipients will someday face harsh and immediate cuts, making this program a place of diminishing returns — if Social Security still exists by then…

The raw numbers certainly suggest the days of this Ponzi scheme are numbered.

In that regard, here’s the math no one seems willing to face:

  • Today, 53 million people collect Social Security benefits.
  • By 2035, Baby Boomers will push that number up by 75% to 93 million people.
  • On the other side of the ledger, the prime working-age population (ages 20 to 64) will increase only by 10%. By that time, just two people will be working to support each retiree.

Good luck with that one.

You Decide: Pay Now or Pay Later

Here’s the bottom line: Your retirement depends entirely on you.

You can pay now through savings and investment, or you can pay later with sleepless nights and broken dreams.

The good news is, if you’re young enough, you still have the most precious resource of all: time.

And by using the power of compounding, anyone can easily retire a millionaire if they are willing to save consistently and stick to the plan.

As I’ve discussed before, Dividend Reinvestment Plans (DRIPS) offer investors a safe and steady path to building true wealth. The secret to this approach is in the compounding effect that Albert Einstein once called “the most powerful force on earth”.

That’s where The Rule of 72 comes in. The Rule of 72 says that in order to find the number of years it takes for you to double your investment at a given rate, just divide the yield into 72.

For example, if you are earning a 9% dividend on your investment, it only takes eight years to double your money — and roughly 13 years to triple it.

This compounding effect arises when your dividend yield is added to the principal; from that moment on, the interest begins to earn interest on itself. Over time, that process can add up to a small fortune — even with very modest investments.

In fact, by using this simple but powerful strategy, you can actually build a $270,000 nest egg in just 35 years by contributing as little as $100/month. That’s the cost of a cable bill.

These fool-proof retirement strategies are not only easy, but they sure as heck beat long nights spent staring at the ceiling…

Build True Wealth  

One of my favorite wealth-building stocks has always been Johnson & Johnson (NYSE: JNJ), and I’ll tell you why…

I bought 500 shares of JNJ in 1990 and have been reinvesting the dividends ever since.

Today, that original purchase has grown to 5,392 shares worth a little over $350,000. That’s a 1,079% gain in 20 years, and all I had to do was stick to the plan.

It’s part of the reason I sleep like a baby nearly every night of the week.

Your bargain-hunting analyst,

steve sig

Steve Christ
Editor, Wealth Daily

P.S. My Wealth Advisory subscribers have been busy building wealth for some time now. Since its inception, my dividend portfolio is a perfect 9-0, with net gains of 283% in just three short years. Isn’t it time you started to build true wealth?