Retire a Millionaire

Discussion in 'Employment & Finance' started by Cigar Cowboy, Apr 25, 2011.

  1. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    It always suprises me when I hear poeple say they have no retirement savings. I started a retirement account when I was 20 and I have always had money automatically deducted from my paycheck bi weekly to contribute.

    I saw this artical and it shows exactlly how much you need to save in order to retire with one million dollars. Maybe it will help some of you reach your financial goals.

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    Start With $10,000 and Retire a Millionaire

    The 7% solution: Let money and time work for you, no matter your age.

    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 money away regularly. But even if you don't have as much time, you still have options other than a last-ditch Hail Mary pass.

    It can be done -- even if you start with just $10,000.

    "Whether you're 25 or 45 or even 55, you've got to start somewhere," said Nathan Dungan, 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 of every three Americans between the ages of 18 and 33 have 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 they turned 65, they 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.

    If saving a few hundred bucks a month seems daunting, rest assured it only gets worse. One way to make the job easier is to rely on your job -- specifically investing in your company's 401(k) plan and enjoy whatever contribution match your employer offers. Think of it as free money.

    Don't have a 401(k)? Open a Roth IRA if you qualify, and automatically deposit money into it from your bank account to get tax-free growth.

    35 Years Old: Early Innings

    Ten years later, the price of waiting has been high. Not as costly as it will be, but tough enough. Instead of $320 a month, you're looking at saving $775 a month to turn that $10,000 into seven figures at a 7% annualized return.

    Don't beat yourself. Just save. Funnel money into your 401(k) so you're not dipping into your own pocket for the full amount. Take the Roth IRA route if you can. By now you may have a young family -- so do it for the kids. Show them you not only can make money, but also know how to handle it.

    "Children can be extremely good motivators to good financial habits," said Eleanor Blayney, consumer advocate for the CFP Board and a wealth adviser in McLean, Va. who specializes in financial planning for women.

    Teach the kids sound money habits, and teach yourself at the same time. Said Blayney: "It induces you to be financially smart."

    45 Years Old: Halfway Home

    At 45, you're likely established in your career, with a decent salary. You may own a home, and the kids are thinking about college.

    It's good you're making money, because you'll need to add $1,850 every month to that $10,000 base in order to reach $1 million in 20 years.

    "There's a greater sense of urgency; your window for taking advantage of time is starting to close," Dungan said.

    Yet one in four Americans between the ages of 46 and 64 have no retirement savings, the Harris Poll found. Another 22% have retirement savings mostly in bonds and savings accounts.

    With so little saved at this point, you would do well to reevaluate your expectations for retirement. Are you saving and investing accordingly? You may have to weigh the purchases you make today versus a stable retirement.

    "Now's your chance," Blayney said. "Don't blow it."

    55 Years Old: Winding Down

    At 55, the amount needed to reach $1 million with a $10,000 bankroll is both comical and sad: $5,700 a month for 10 years.

    Maybe you've been living paycheck to paycheck, and life has been good. You've got a nice house, a fancy car -- but no savings.

    In short, you have a big hat, but no cattle. The millionaire is next door, and he isn't knocking.

    This is your moment of truth. You may not become a millionaire, but you can live like someone who is on the way to being one.

    Here's how: Cut expenses, save what you can, and work longer.

    "If a client is in their mid-50s and hugely behind, we start to focus on lowering expenses by paying off debt, restructuring debt, or lowering housing costs," said Guyton, the Minneapolis financial adviser.

    "If that change lowers their expenses by $1,000 a month, that's more beneficial than helping them accumulate an extra $100,000," Guyton said. Indeed, cutting $12,000 a year from expenses equates to what roughly $175,000 in assets would produce at a 7% yield.

    And take care of your health, Guyton added. You're going to need it in order to show up at work.

    "It's a whole different matter when you have to stay on the treadmill," Guyton said. "We don't mince words. We try to make it manageable and realistic, but there are some options that aren't on the table anymore."

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    Last edited: Apr 25, 2011
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  2. jjon90

    jjon90 CRA Member

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    In general, you draw about 5% of your nest egg for retirement. So if that nest egg is a million, that would give you a $50,000 dollars a year to live on minus any pensions or Social security.
     
  3. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    Yeah...I know I could not live on 50K per year.
     
  4. Jwrussell

    Jwrussell April '05 BoM

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    A good look at the hard, ugly truth. The numbers are doable for the 25 year old. If you are making $32K or more it's 10% or less. Once you start hitting the 35 year old mark you better be in the $60K/year range and it's still going to hurt like hell. $775/month? That's over 15% you need to be socking away into your 401K. Age 45? Might as well forget about it...either that or you probably don't really need to be worried. Because to put away that kind of money you first need to be figuring a way to put money away above and beyond the 401K Max (16,500) because that's 22,200 over the course of the year.

    The biggest step is actually getting into the 401K in the first place. I remember practically brow-beating a younger co-worker a few years back to do it. Even if you need to start with a small percentage, just do it. And once you've done, set up your account to automatically increase your deductions by 1% every 6 months until you are contributing 10% (or more). It's amazing how little you miss that 1% of pre-tax dollars. Most of us live up to our means. If our means are 30K, that's pretty much what we spend. If they are 35K, same deal. Better the money not be there and be going into savings. It's much harder to cut back to start saving than it is to simply learn to live withing a set number to start with.
     
    Last edited: Apr 25, 2011
  5. Wink

    Wink

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    Looks Good Michael, Im at the cross roads now. Im not sure if I should or shouldn't invest in a 401k. I know I couldn't afford to put away that much a month at the present though.
     
  6. itallushrt

    itallushrt hero

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    I couldn't agree with you more CC.

    My ability to retire, pay insurance later in life and continue or improve a lifestyle I've come to enjoy is 110% my responsibility. Because of this I am taking advantage of every single tax sheltered investment opportunity I can and making decisions now so that later in life I can, as Dave Ramsey says, "Live like no one else".

    Anytime I talk to my sister, cousins, friends and I ask them about what they are doing for their retirement 95% of the time it is nothing or donating the minimum to my 401k. I never ask them to divulge any particulars, but instead I just make sure to email them a link to a google search ....

    http://tinyurl.com/3potac3

    I also send them this:

    [ame="http://en.wikipedia.org/wiki/Roth_IRA"]Roth IRA - Wikipedia, the free encyclopedia[/ame]


    I hope it opens their eyes.
     
  7. itallushrt

    itallushrt hero

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    anything is better than nothing!!!!!!!!!!!!!!!!!
     
  8. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    I think an excellent yearly goal is hitting that $16,500 which the government allows you to contibute to your 401K non taxed.

    If your wife has a 401K you both should be able to contribute $16,500 to reduce your house hold income by $33K which may help keep some of us away from that $250K tax bracket where the government is really going to fvck ya.
     
    Last edited: Apr 25, 2011
  9. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    Like Jason said even 1% is better than nothing and your taxable income is reduced, which in turn lowers your tax burden. 1% to 3% is hardly even felt.

    Plus, for those who can afford it that are 50 years or older who participate in a 401k plan can take advantage of a "catch up" contributions, this allows you to contrbute an additional $5,500 in addition to the $16,500 limit.
     
  10. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    That is what makes this work so well
     
  11. itallushrt

    itallushrt hero

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    Exactly. :cbig:
     
  12. Jwrussell

    Jwrussell April '05 BoM

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    Put away what you can! Even if it's only a few percent. Start at 3%. Trust me, with it being pre-tax dollars, you will be surprised how small the difference is in your take home check, and you WILL learn to live without it. If you take anything away from this thread/that article, it should be DO IT NOW!
     
  13. Jwrussell

    Jwrussell April '05 BoM

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    That's a good goal for those making that kind of scratch, Michael. Not all of us are nearly that lucky. Just sayin'. :thumbsup:
     
  14. SmokeProper

    SmokeProper

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    I'm in need of this actually.
    Maybe some can help...

    My dad have me this info(from cc) few years ago which has my wondering what's the best vehicle for my retirement $.

    Im 28.

    My company offers a 401k. They 100% match my contribution up to 5%. But man the guys that had a lot of $ in there in 2008 lost a crap load. Is a Roth IRA less fluctuating the a 401k?
    That's kind of my big question. What's the best way to contribute my $?
    Also, as appealing as "free money" is, I'm not sure I like the ideas of all my eggs in one basket(company){income/employment, healthcare plan, and retirement account). My company and job title is in an industry which is changing very quickly and the future is unknown. The company will be around forever, just not sure how it all looks.
     
  15. majicmerlin

    majicmerlin

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    MY FAMILY HAS DONE ALL THE RIGHT MOVES ON THE 401K BUT AS FAR AS I AM CONCERNED THIS HAS BEEN A LOST DECADE FOR FIN. GROWTH. :hammersma
     
  16. Jwrussell

    Jwrussell April '05 BoM

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    At a MINIMUM, you need to put in 5%. Your company is basically offering you a 5% raise. Why would you turn it down?

    Every 401k option I've ever seen has options to let you customize the amount of risk you are willing to take. Something to keep in mind though, at 28 you have a LONNNNNNNNNNNNNNG time with your money in the market. Those guys you are talking about that "lost a crap load" in '08 didn't really lose anything. They lost some paper on value, it means nothing. Sure, it's possible to go too risky, but so long as you stay diversified you spread your risk around. Further, while it sucks to lose value in your 401k when the market tanks, you need to remember that you are still pumping money into it, which means you are still BUYING adn that means that you are BUYING LOW! That's the important thing. When the market goes down, all that means is you are getting a better cost on the financial vehicles you are purchasing. Patience is the key. Just make sure you adjust your risk taking as you get older and you'll be fine.


    NOt sure I'm understanding here. You aren't required to invest all of your funds into your company's stock are you? If so, then yeah, that's a much more risky venture. That being said, if the company is solid, I'd still dump the 5% in and get the match and dump another 5% into a seperate account you set up yourself that you can diversify.

    I hope some of that helps.
     
  17. Jwrussell

    Jwrussell April '05 BoM

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    Did you stop putting money in? No? Then you are just buying low.

    Unless you are near retirement and still invested at a high-risk rate, you really shouldn't be overly worried about this. It's not that it's a great thing, but it's not nearly as bad as some tend to think.
     
  18. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    Awesome!!! These programs are great for those who can not afford to put away a lot of $$$ each month.

    Lets say because you are making $4K per month or $2K per paycheck. You figure out that the most you can contibute to a 401K is $100.00 per paycheck. They take out $100 per paycheck which leaves $1.9K that is taxed. This is why you don't feel the $100 that much. It feels more like $70 per paycheck.

    But the nice thing is they are taking out $100 per bi weekly paycheck, but you are contributing $400 per month to your retirement with their match.

    If you can afford it, you should always do what the company matches. Which ion this case is 5%. That is free money! I never like to leave money on the table.
     
    Last edited: Apr 25, 2011
  19. krulos

    krulos

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    When it comes to stocks/mutual funds you do not lose money unless you sell when the value is down. Your number of shares remains constant. The people who panic and sell when the market tanks are the ones who lose money.

    401ks and Traditional IRAs are tax-deferred. You deduct your contributions annually from your taxable income, and you pay taxes on your contributions and earnings once you start receiving distributions.

    Roth IRAs fluctuate just the same, and your contributions are taxed as income. When you retire, the distributions and earnings are tax free.

    In short, 401ks/Traditional IRAs are good for lowering your present taxes, but Roth IRAs can pay more in the long run because your earnings are tax-free.

    If your company matches, you should contribute at least the percentage they match (that's free money!). If you have the funds available you should contribute to a Roth as well.
     
    Last edited: Apr 25, 2011
  20. Cigar Cowboy

    Cigar Cowboy BoY...in Hell!!!

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    The stock market had excellent growth under Bush considering 9/11 and a multiple wars (It peaked at a record high). They we had some serious issues in Sept and Oct of '08, but it has bouced back fairly strong with this last election cycle even in the face of a bad economy and job market.

    See my stock market prophecy from Sept 2010 that turned out to be spot on correct: http://www.botl.org/community/forums/showthread.php?t=43514
     
    Last edited: Apr 25, 2011

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