How to retire comfortably

What would you say to someone who isn't sure if they have enough money to enjoy retirement?

First, I would let you know that you're not alone. Many people have insecurities about their financial futures and their impending retirements. This is understandable. Our generation is the first to be responsible for our own retirement and there aren't many mechanisms in place to help us with this undertaking. As a result, we haven't had the knowledge necessary to be responsible with our personal finance management.

Second, admit what you don't know. Issues of money and finance should not be shrouded in mystery and off-limits for discussion. We can't learn about something we can't discuss with others. By opening the dialogue you have the freedom and opportunity ask key questions without feeling intimidated.

Third, talk to a trusted advisor. Work with them to determine your financial strategy, the plans and practices to put into place for you to retire comfortably, pay for your children's college educations and provide for aging parents who may not be financially set. Having a plan in place takes away the uncertainty of wondering where you stand and provides you a sense of balance between your future financial obligations and living a lifestyle today that is satisfying.

The Magic of Compounding

Compound interest is often called the eighth wonder of the world, because it seems to possess magical powers. As an example, would you rather have $10,000 per day for 30 days or a penny that doubled in value every day for 30 days? Due to the power of compounding, at the end of 30 days, the doubling penny would amount to about $5 million versus the $300,000 we'd have if we chose $10,000 per day.

The great part about compound interest is that it helps us to achieve our financial goals. Let's look at the basics: Two hundred dollars invested at a 10% return will be worth $220.00 in a year. Invest that $220.00 and get 10% again, and you'll end up with $242.00 two years from your original investment. The first year earned you $20.00 and the second year generated $22.00.

To really benefit from the magic of compounding, it's important to start investing early. After all, it's not just how much money you start with that counts, it's also how much time you allow that money to work for you:

Starting at age 25, saving $4000/yr at 8%,

Total amount at age 65 = $1,123,124

Starting at age 30, saving $4000/yr at 8%,

Total amount at age 65 = $748,408

A Difference of $374,716

The Rule of 72

The Rule of 72 is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. This formula helps investors determine what return they must earn to double their money within a specific number of years. It can also be used to determine the impact inflation will have on your buying power in the future.

If you know you can earn 8% on your money, you can determine how long it will take to double your money by using the Rule of 72: Simply divide the 72 by your rate of return (8). The answer (9) is the number of years it would take to double your investment.

Using the Rule of 72 you can also determine how inflation will impact your lifestyle costs a number of years from now. If the cost of your lifestyle today, excluding your mortgage, is $50,000 and we assume a 2% inflation rate then your expenses would double every 36 years (72 ¸ 2 = 36). This simple calculation quickly shows that, due to the 2% inflation rate, in 36 years it will cost you $100,000 to maintain the same lifestyle you do today for $50,000. If inflation is at 4% your expenses would double every 18 years (72 ¸ 4 = 18).

As you can see, the Rule of 72 helps to demonstrate the implications of just a small increase in returns or inflation and the implications those changes have over long-periods of time. The Rule of 72 is quick and easy to use. However, like any rule of thumb, this rule is best used for approximations.

Don't Be HIPP

In the Bay Area we have the opportunity to earn higher incomes than in many parts of the country. While this is a great opportunity, it also can be a trap. While it may be tempting to spend all of our income on our lifestyles it does not allow us to accumulate the savings necessary to fund our retirements. To accumulate wealth and net worth, we need to limit our expenses to allow us to save and invest in assets that will grow over time.

While some high income earners are in seemingly enviable positions, looking a little closer may reveal that they are also HIPP - High Income Poor People. Generating income is fundamental, important and opens opportunity, yet with it comes with the responsibility of generating net worth. For many who retire very well, high income was never part of the equation; they simply lived within their means and saved consistently over many years. There is great dignity in living within ones means, no matter what the level.

About Susan McHan:
Susan McHan is co-founder, President and CEO of Opes Advisors, a premier financial advisory firm that specializes in Investment Management and Residential Mortgage Services. Susan has over twenty years of experience in the financial services industry.

About Opes Advisors:
Founded in 2004, Opes Advisors has successfully coupled investment management with residential mortgages to provide clients comprehensive, strategic financial planning. With this unique combination of financial expertise, Opes is able to provide clients with guidance in positioning all of their assets, including their primary residence, in a way that is most effective in turning out their financial future. This is especially relevant in the Bay Area where real estate is one of the most important assets in a person's portfolio.

Our investment management division specializes in strategic planning. We need to understand our client's complete financial situation, including real estate, 401ks, stocks and bonds, before we can make proper assessments and recommendations. While we serve clients of all sizes, we often work with clients with assets between $500,000 and $2 million, a group that has traditionally been underserved. Our mortgage clients also benefit from Opes Advisors' investment management expertise. Unlike other mortgage firms, we have the ability to provide borrowers strategic financial advice when they're buying, selling or refinancing a home. This comes with no more cost than obtaining a mortgage from a conventional firm, yet ensures that the loan structure is in alignment with our clients' overall strategy to support their long term financial goals. Locations include Los Gatos, Palo Alto, San Mateo and Marin. Website:

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