The Tried-and-True Way to Build Wealth

In today’s ultra-connected world it’s even more tempting to compare ourselves to our family, friends, and neighbors. Are we falling behind in our career? Is our family life sub-par? Should we be making more money? Although we all know that people post their best images and experiences on social media, it’s easy to forget that we are tuning in to a lop-sided view of reality. Ironically, this warped perspective can encourage ideas and behaviors that move us further away from what we’re trying to find: a happy and rewarding life.

At Parsec, we work with one aspect of a happy and rewarding life: helping our clients reach their long-term financial goals. Often these include becoming financially independent and retiring comfortably.  While social media and the popular press would have you believe that the right image, owning an expensive car or home, and living a lavish lifestyle translates into financial success, it doesn’t. What does lead to financial independence – and happens to be highly correlated with happiness – is much less glamorous and a lot simpler. It’s the age-old adage of living below one’s means.

Although it’s not sexy, spending less than you earn month-in and month-out is one of the most dependable ways in which to accumulate wealth. Sure there are a handful of folks who will strike it rich with the next great idea, but for the vast majority of us, we will earn our livelihoods working for a company. This is good news, really. The risks are much lower with a nine-to-five job, along with stress levels, and the path to financial independence is quite clear. Time and again, research confirms that spending less than you earn while regularly contributing to a low-cost, well-diversified investment portfolio can lead to significant wealth accumulation.

No, it’s not very exciting and unfortunately, it’s not that easy either. We can see how difficult it is for Americans to live below their means by examining our aggregate retirement savings metrics. According to the Economic Policy Institute (EPI), the median retirement savings of all working-age families in the U.S., defined as those between 32 and 61 years old, is a mere $5,000! That stands in stark contrast with the amount of money most experts suggest we need to retire at age 67. While retirement savings will vary considerable from one person to another, one rule of thumb recommends having ten times your final salary in savings. Given a median U.S. income of $59,039, this suggests that the average American needs about $590,390 in savings to retire.

So why is it so difficult for most Americans to live below their means? Of course, it varies from person-to-person, but there are some recurring themes. In general, Americans seem to want instant gratification more so than in the past. One theory is that as an over-worked, time-crunched culture, we are dealing with higher stress levels than earlier generations. We then try to manage our stress by turning more and more to material things and experiences. While we know intellectually that spending on items we don’t really need only provides temporary relief, our tendency to accumulate things often becomes habit-forming. Big money problems can then arise when our need for immediate gratification gets paired with a lack of financial awareness. America’s current retirement savings situation reflects just such a scenario.

All that said, if you are reading this article it suggests you have or are starting to cultivate financial awareness, which we believe is a big part of the solution. As we start to question our spending motivations individually and as a culture, it will help us become clearer on what we’re really after and how to get there. While we are a vastly diverse nation of people, it would seem that at the end of the day most of us are after the same thing: a happy and fulfilling life.

Once we realize this, we can start to eliminate habits or tendencies that get in the way. We can start to simplify our lives and spend our time, energy, and money on things and activities that contribute to a happy and fulfilling life. Doing so naturally helps us live below our means and comes with the added benefit of reduced stress levels. From a financial perspective, a simplified lifestyle not only helps accelerate your ability to save for retirement but it means that once you reach retirement, you will require less income in your golden years. Starting to live below your means early-on, questioning your spending motives, and simplifying your life can become a virtuous cycle that suggests your retirement years can truly be golden.

Carrie Tallman, CFA, CFP®

Guest Blogger

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How do I Apply for Social Security Benefits?

You’ve worked hard, met with your financial advisor, determined when to take Social Security and you are set to retire… now what? Many retirees get to this point and are not sure what the next steps are when applying for Social Security. Thankfully, you have three options!

  1. Online: Prefer to handle things on your own? Today, it’s easier than ever to apply for Social Security by applying online. Visit their website to get the process started. If you don’t finish the application, they make it convenient by allowing you to return and finish the application later.
  2. By Phone: Not savvy with the computer? You can also call Monday through Friday from 7:00 a.m. to 7:00 p.m. at 1-800-772-1213 to speak with a representative and apply for your benefit.
  3. In Person: Prefer to handle things face to face? You can visit your local Social Security office to apply for your benefit. Please visit their office locator to find the office closest to you.  I’d recommend either calling to set up an appointment, or getting there early. Like the DMV, you may end up waiting a while!

It’s important to be prepared when starting the application process for your benefit. Below are some of the items that you may need to be prepared to provide when applying.

  • Birth Certificate – this needs to be an original certificate or one certified by an issuing agency. They will not accept a photo copy.
  • Proof of citizenship or lawful alien status.
  • Copies of W-2 forms and/or self-employment tax return for the previous year.

If you don’t have all the appropriate documents, don’t let that stop you from applying.  The Social Security office will take what you have, allowing you time to collect the other documents.  Any original documents that you have provided will be returned to you once you have completed the application process.  If you don’t know how to get all the documents required, I recommend speaking with a representative at your local office.  They can help point you in the right direction.

It’s important to note that the Social Security Office recommends that you apply for benefits at least three months prior to the date you wish to start receiving your benefit.  The earliest you can sign up for your benefit is 61 years and 9 months of age.

If you are nearing retirement, and would like to determine the best time start receiving your benefit, please call your financial advisor to discuss. We are here to help!

Ashley Gragtmans, CFP®

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