Half birthdays are important to kids under 8, but should also be important to adults over 44. That is because at 59 ½ you can start withdrawing from your 401K and IRA accounts without penalty. So 15 years after your 44 ½ birthday you should be able to retire. Happy Half-Birthday! When you do retire you need to have the right mindset.
The first change of mind you need is to realize you no longer work for assets your assets work for you. So your cash, stock, cars, home, and anything you own of value now need to work for you to make money. They do this by growing in value or offsetting costs. Stocks and homes are good assets because they tend to go up in value. Cars and cash are bad assets because they tend to go down in value. This doesn’t mean cars and cash are bad. A car can be good to own if the total cost of owning a car is less than the total cost of using public transportation. Cash is needed as a medium of exchange. Yet, because of depreciation and inflation cars and cash respectively will be less valuable over time. A retired person who lives solely off of selling assets in their IRA and other places needs to be aware of which assets go up in value and which go down. The amount your assets need to appreciate each year is dictated by how much you spend each year. If you spend a little then your assets don’t need to work very hard. If you spend a lot hopefully your assets are growing in value fast enough to cover your spending. Debt should be avoided because you need to pay it back by selling assets which could be used to generate money for you to live off.
For the long run stocks demonstrated the ability to consistently increase in value. That is why they are the best store of value and source of income for retired persons. The SP500 returns 9.8% a year on average. This year the SP500 is up over 8% so far! So on average a $500K IRA could generate $49K of income per year.
