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YOUR GUIDE TO RETIRING A MILLIONAIRE – WHEN YOU’RE 40 WITH NO SAVINGS
Unless you’re superhuman, celebrating your 40th birthday is sure to be one of your life’s greatest milestones. And reaching such a milestone surely leaves a lot to think about!
One thing that you may not have been thinking, however, is saving. After all saving is important, given the crucial fact that you’re exactly in the place which is just as close to your graduation as it is your traditional retirement.
Did thinking of that make you a bit scared? Well, then you should know that you are not alone. According to The Employee Benefits Research Institute, over 37% of all employees between the ages of 35–44, as well as 34% of all employees between the ages of 45–54 have no more than $1,000 (!) saved for retirement. If you’re one of the many who do belong to this category, you probably have resigned to the fact that retiring with $1 million in the bank is totally out of the question for you.
Well, not entirely. You may be 40 and have virtually no savings, but there’s still a way for you to reach that $1 million retirement goal — and it may actually be simpler than you think!
How a few numbers can change your future
Here’s a bit of simple math to help you understand how much you need to save…
If a 40-year old who’s just got started wishes to retire with $1 million in the bank within the next 25 years, he/she would need to need to set apart at least $800 a month, which constitutes somewhat shy of 20% of an average $50,000 annual income. If the same individual delays their retirement and works till the age of 67, they can reduce the monthly investing amount to no less than $650, which constitutes approximately 15% percent of the same $50,000 annual income.
Regardless of the route you take, you should make sure to put your money wherever it will give the best dividends. The simplest way to ensure that this happens is to put your workplace retirement plan (i.e. a 401(k)) in place. Ordinarily, employers who offer 401(k) end up matching a portion of the investment. Therefore, if you invest enough to get the full match, you can get instant as well as guaranteed 100% of your money back to you!
And in case your employer offers a Roth 401(k) option along with an option of good growth stock mutual funds, you can consider investing the entire amount in the workplace plan itself. In the event a Roth 401(k) is not available, you can just invest up to the employer match in the 401(k), and thereafter open another Roth IRA account where you can invest the rest of the money that you have set apart.
Does the math really work?
Having read the pathway to achieving your $1 million retirement goal, you’re probably thinking whether adopting such a plan is beneficial – or even possible – in the first place, especially when you need to invest at least 20% of your income every month. Yes, you can! However…
That is something you can do only when you have no debts (except, maybe your home), and have a well-funded emergency fund in place (that can compensate for your expenses for 3–6 months). However, if you’re not on such a budget, chances are that you have zero confidence in your ability to be able to afford investing $800 a month (at least).
This is, in most part, due to lack of proper planning, which pretty much gives the dreaded feeling of being broke all the time. You do need planning, though – after all, it is the only way you can set your priorities in time, and properly track the where, how and why of your money.
Here’s one place you can start if you’re stuck with planning: First, pay attention to the basics (food, shelter, clothing, transportation and utilities). Then, ignore everything else and put retirement on the list. Whatever’s left can be divvied up among the rest of the spending categories. Sure, you will have to cut back on certain things like traveling or eating out. However, making these sacrifices will help you make the future your want – and need – where you can retire comfortably.
How a change of perspective can make you a millionaire
So you’re among the many who have not bothered about saving since the last 20 years and upon hitting 40, are now wondering whether you really should even try saving in the first place. In that case, you should know this: If you change your habits now, and maybe sacrifice a bit by spending a lot, you can make yourself a better future by retiring without any financial worries!
Talking with a certified investing professional can help you choose long-term mutual fund investments, keep track on their performance, as well as maintain your path to a financially healthy retirement!
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