5/16/2011 12:09 PM ET|
Start with $10K, retire a millionaire
Hoping to reach age 65 with $1 million? You can achieve your goal, but getting there requires discipline -- and the earlier you start, the better.
The millionaire next door could be you.
All it takes is money and time; it always does. But what this really means is you have to save money over time, and that's where so many of us struggle.
Reaching age 65 with $1 million saved requires strong discipline and sustained effort. You need to recognize the importance of starting early and putting away money regularly. But even if you don't have so much time, you still have options other than a Hail Mary pass.
It can be done -- even if you start with just $10,000.
- Calculator: Are you saving enough for retirement?
"Whether you're 25 or 45 or even 55, you've got to start somewhere," said Nathan Dungan, the founder of financial education firm Share Save Spend.
Call it a 7% solution. Assume a 7% inflation-adjusted return from a portfolio of U.S. and international stocks, bonds and cash -- not overly aggressive, but an expected return that requires taking some risk -- and living well within your means.
"In order to save, you have to understand your spending," said Eric Kies, a financial adviser with the Planning Center, an investment manager in Moline, Ill. "Build some awareness of where you are now, where do you want to be and what are you willing to do to get there."
Of course there will be bumps along the road -- potholes, even -- that challenge your resolve. The financial markets love to shake and stir individual investors; don't give up, because it may be hard to get back in.
"It's less about where the money is invested and more about your ability to be disciplined," Dungan said. "Ask yourself, What is realistic? What can I achieve? The best savers don't have magical thinking about money. They're honest with themselves."
25 years old: Starting out
Forty years is a long time. So long, in fact, that it's easy to put off saving for the future. There are bills to deal with, college debt to pay, stuff to buy, vacations to take, a career to build.
Savings -- sure, but who has money for that? Indeed, one out of every three Americans between the ages of 18 and 33 has no personal savings, according to a recent Harris Poll survey. What's more, 53% of this age group has zero in the way of retirement savings.
They're missing out, big time. If a 25-year old with $10,000 invested $320 a month at a 7% annual compound rate of return until age 65, he or she would wind up with $1 million.
"There's a reason why Albert Einstein called compounding the most powerful force in the universe," said Jonathan Guyton, a principal at investment manager Cornerstone Wealth Advisors in Minneapolis.
Whether or not Einstein really said this, the math speaks for itself. At 7%, your money doubles every 10 years.
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Most don't have 10k because they have no ability to save their money. Case in point. How many people do you know that have an iPhone with no real need for a phone with all that capability? If they gave that phone up ($125/month) in 5 years they would have $7,500. If during that same time they gave up 1 dinner out ($42/month) they would be a little over the 10k mark.
The problem is not being able to save money, the problem is the desire to save money. It is valuing new cars, laptops, fancy cell phones, iPads, expensive clothes, etc. over building wealth.
The stock market will make you money, if you invest properly. Sorry, if you gamble and are lucky. 30,000 people had their money stolen by Enron. Over 20,000,000 people lost significant amounts in the dot com bust. With over 10,000 wealth scams, it is estimated that almost 100,000,000 people will not have enough to retire in the next 10 years.
Save your money from high school and keep investing every month on a consistent basis. Go without a new car, new house or many things that we call necessities. At the end of your life you may retire. Of course if you have a heart attack, car accident, you may only live to be 60-65, and most of your retirement will be eaten away by your healthcare costs as we have no healthcare for the elderly.
The only people that live with little fear of retirement, make 250,000 a year and above. The rest of us will just maybe be able to afford to live, with our relatives.
Or get out of your dead end job and make your own money. My highest paying job has been under 50k a year. I lost over 200 grand making investments like I was told to in the dot.com era.
Now I sock every penny away, and horde like a hermit. I am half way to my million without ever making more than 50k. I even have a nice car to boot. I dont smoke, I dont drink, and I only drive 10,000 miles a year. I buy groceries instead of fast food or restaurants. I dont drink bottled water, I filter my own. YOU CAN DO THIS.
I learned the value of saving at an early age. When I turned sixteen my father insisted I get a job. At the time I already earned money by mowing lawns and baby sitting. My parents never gave me an allowance so by earning by own money it was a good way for me to learn the value of a dollar. Even though I was doing these odd jobs my dad told me to get a job and start paying for my own clothes. I worked part time in a bakery before and after school and on the weekends.
I got my own checking account with my father's help, since I was a minor, and savings account. I learned to balance my checking account and started saving my money. When I graduated high school I had over four thousand dollars saved. I learned to manage my expenses and to budget myself. I started paying rent at seventeen and I worked my way through college.
Even though I was very good at saving money I only put my money in savings accounts and CD's. I was afraid of investing in the stock market. After a time, I lost my fear and educated myself and starting to put my money to work into stocks and other investment vehicles. Most of the stocks I owned are in dividend investment plans. I started small with those stocks and put in a little money each month in the DRIP plans and continued to reinvest the dividends. I was in my late thirties when I started to invest in stocks.
I also invested money in the companies I worked for 401K plans and did my best to contribute the maximum amounts in those plans. I am in my fifties and on paper I am a millionaire. I still have twelve years or more years before I plan on retiring and I hope to double or triple the savings I have now.
In the years since I first stared working I have been through company lay offs. I worked two full time jobs to make a living. I have been through the up and downs of the stock markets and the low interest paying climate in today's financial world. I do not make a six figure salary but have learned to put money away for a rainy day because there is a good chance in your work career you are going to have days it pours.
The investment lessons I learned over the years is to start investing young and learn to live within your means. Manage your debt and diversify your investments. You can become a millionaire and achieve your investment goals if you have an investment plan and are disciplined in budgeting yourself. Live within your means and try not to incure a lot of debt.
I agree with a lot of the comments that have been posted. A million dollars today is not that much money twenty years down the road. I think the point of the article is to start saving today so you can be financial secure for the future. It is a lot easier to do if you start saving and investing at an early age. The time value factor of starting savings early is incredible.
It's pretty sad what's happened to the american dream. Had I known how bad this country was going to get and how expensive it was going to be, I may have done a few things differently. I envy our parents who could get by on one income, have a home and a vacation home and still have time to enjoy life.
So the advice here is to work 2 jobs, give all your money to the wall street sharks, don't spend any money and live like a POW so you can have enough money to retire... you know, that time of your life when you have no health or ambition to actually enjoy it... Pretty sad.
BFD. Every single retirement calculator tells US that a million is NOT ENOUGH.
We are 61 and 59. We have $1.2 mil in retirement accounts, our modest $130K house was paid off long ago, we pay cash for new cars, have no debt. We will even get $22K per year for 15 years from my husband's "pension" plan after retirement.
Yet, we cannot retire for 4 more years. We can't afford private healthcare insurance.
WHAT is wrong with this picture?
Interesting that several have given my post a thumbs down? Wondering why, is all....our is a real life story and situation - what did I say that was thumbs down-worth?
"Retirement" in the future will be far different than it is today. Instead of stopping work at 65 and playing golf and traveling the world, people will be working into their 70s. Instead of relying on the returns of a nest egg, people will rely on various sources of income - rental property, residual income, part time jobs, etc... Wanna secure your financial future? Work now to be able to generate a reliable source of passive income in the future. Build a website, write a book, develop some consulting work, learn to play poker extremely well, purchase rental property, be a silent partner in some local small businesses, buy and sell antiques, teach night classes, etc... In the near future, with inflation risks, rock bottom bond yields, and a sideways stock market, wise retirees will be bragging about how many different sources of income they have, not how big their nest egg is.
Me and my fiancee are in our late 30s and contribute 14% & 16% of our pay towards our 401k. Based on the numerous calculators, we have an 85%-100% chance of being able to spend 100% of our pre-retirement income in retirement.
Had I not cashed out my first 401k when I changed companies, I could be contemplating much better options. Fortunately, the light came on in my 20s so I'm not playing behind the 8-ball but many challenges await. Sadly, as much as I preach about the benefits of 401k accounts, most of my fiancees friends and family do not even participate in their company's plans. Let's hope I don't feel guilty when we're spending a month in Jamaica while they spend their days waiting on their Social Security check.
I'm a 29 year old programmer from NJ. I make 60k per year and I put 9% of my salary into my 401k. My company matches $.50 on the dollar up to 6% and after I'm in my 401k plan for 5 years they up it to $.70 on the dollar. I think I started it 3 or 4 years ago and it is already over 22k. I live in NJ and I don't even miss the couple of hundred dollars a month I put in there. I live with my wife in a 3 bedroom home and have 5 cats and 2 dogs. I have dental and medical insurance and even personal accident insurance. So I'm not some kid living at home. I take reasonable vacations (not every year), I eat at home most of the time but we do go out. I have a 52" TV, new laptop, new smartphone, new-ish car, everything I could ever need. You don't have to live below your means to save money, but you do have to make some decisions about where you want to be when you get old. I want to be livin' large, not living in some crappy retirement home. Yes if you live on your own and make under 40k per year putting away 9% of what you make can be too much. But that doesn't mean that you shouldn't put away something. Plus if your company matches what you put in and you still don't have a 401k, you are basically saying "don't give me free money". The government isn't going to take care of you when you are 65, the ponzi scheme that is social security is already starting to falter the baby boom took care of that (basically there aren't enough new investors to cover the old ones if you don't know how that works). If you don't start saving, you better start playing the lottery and hope that your numbers come up.
----I'd like to add that you shouldn't live like a prisoner or like a king. You should find a middle ground. Treat yourself sometimes and deprive yourself other times. If you don't enjoy yourself when you are young, what is the point to living forever? Also, 401ks aren't the only answer. I'm in the stock market too. I invested $6000 in the market, 2k before the market crashed and 4k after the market crashed. I have made 10k to date on top of the 6k I invested. The best way to invest in the stock market is set aside $25-50 from each paycheck, then once you have around 5-600 dollars find a stock you like, buy as much as you can with that money. Another good way to save money is when you get a raise at work, try to live on what you were making before, don't just decide to upgrade your lifestyle just because you can.
Live a clean life and enjoy what you have. And yes, a 7% return is pretty easy. Some years I did significantly better. A few years I actually had losses. But on average, 7% is pretty reasonable.
So, stop spending and start saving and investing!
7% over your lifetime is not crazy. Google 'Ibbotson charts'. The average return in large cap stocks is higher than that (and small caps return higher, with more variation). These figures INCLUDE the recent 'Great Recession', The Great Depression, the Dot-Com bust, countless wars, and oil price manipulations.
You can't count on short term gains, but in the long run, it pays off to invest in the stock market. It's always better to start young and make small contributions than to wait until you're 40 and have to start dumping in a lot of money and take on too much risk. So start investing young, and please TEACH YOUR KIDS HOW TO MANAGE MONEY.This is a huge problem in our society. Parents don't know how to manage money, and the kids are getting progressively worse because of it. I never had anyone to teach me how to invest growing up (and if they tried, I probably wouldn't have listened), but my family taught me how to save. That is key point to money management. You can't invest if you blow all your money.
"Just save $725 a month on top of your $10,000 base"
ROFL!!! $725 a month?!?!?!?! $100 a month, maybe, if we're lucky. How much does this writer think people make?!?!? They're living in a dream world if they believe the average person can save $725 a month plus $10,000 base.
I have NOTHING in a saving account, but I enrolled in my company's 401K plan and have around $3,000 saved. My company does NOT match my investment (another reason I want to leave). Even though I'm broke, living paycheck to paycheck & have no personal savings, I'm happy when I see my 401K plan growing b/c it's SOMETHING.
I will be opening a savings account with ING Direct, even if its just a few dollars a week I know I have to save something and will increase the amount invested little by little. Just b/c you may not have thousands of dollars saved up by now doesn't mean you don't have hope. Cut out the things you don't NEED in your life and watch your savings grow.
Good luck. :)
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