One million dollars is a lot of money. There was even a game show called “Who Wants To Be A Millionaire” built around the idea of achieving that kind of wealth. That figure – $1,000,000 – seems to be what many working professionals are striving to achieve in retirement. Or in today’s world, I should say they’re looking at that figure as the minimum they need to retire. It’s an enticing number to shoot for since you become something when you achieve it – a retired millionaire!
But you can’t become a retirement millionaire if you don’t plan ahead, and that means saving your income.
What happens when life gets in the way of saving? How do you prevent your early working years from slipping away without putting even a little savings aside for retirement? What if you’re already past your early working years and have yet to start saving? Here are ways to avoid three common excuses for not saving enough for retirement.
Excuse No. 1: I live paycheck to paycheck. I can’t possibly save money.
At some point in everyone’s careers, we have lived paycheck to paycheck, spending every dollar we earn. It seems we can’t possibly find a way to save enough to put toward retirement and achieve financial independence. So, let’s take a closer look at some regularly purchased products and services that can generate a little extra cash, even $50, each month.
I know what you’re thinking – she’s going to tell me to cut out all my favorite things! Not exactly.
You purchase a cup of coffee from your favorite barista twice a week. You enjoy the conversation with fellow caffeine cravers while you wait for that extra shot of espresso. Maybe you grab a pastry every now and again. Your average cost per visit is $7. Total cost per month: $56.
If you can find a way to grab your caffeine fix at home more often and just reduce visiting your favorite barista to once a week, you can save $28. You don’t need professional retirement planning, investment advice or a certified financial planner to tell you that!
You live far enough away from work that you need to bring your lunch every day, or you will need to eat at the cafeteria or somewhere near the office. This happens more than you would like, so you’re paying for lunch, on average, three times a week. Oftentimes you have lunch with a friend or colleague, and it’s a little more expensive than standard fast food. Your average cost per lunch is $15. Total cost per month: $180.
Simply ordering water instead of a soda can save around $3 per lunch. So you could still have lunch with your friends three times a week but save $36 a month by drinking water with your meal. It’s a big change to miss that midday caffeine fix, but it can really add to your early retirement savings. When you retire with financial freedom, you won’t even remember not having soda with your lunch.
Excuse No. 2: I’m many years into my career and haven’t started saving for my retirement. There is no way I’ll save enough now.
Starting to save late is definitely better than not saving at all.
I know how easy it is to get that first job and make more money than you ever have before. You feel “rich” and want to do all those things that you couldn’t do when you were working two part-time jobs and going to school.
You go on short weekend trips, you buy tickets to see your favorite band, you celebrate that milestone birthday with all your friends. Maybe you have started a family, and your kids are in multiple events that take you out of town for competitions each year. You have built a lifestyle that spends what you have, and you have created some incredible memories, if not a higher net worth or an earlier retirement age.
Assume you start putting $5,000 a year into an individual retirement account (IRA) and see a 7% annual return. Let’s look at that different ages at which you start saving that $5,000 and do some quick math:
- If you’re 35 years old, you would have around $740,000 by age 70.
- If you wait until you’re 45 to start saving, you would have $338,000 by age 70.
- If you had started saving at 25, you could call yourself a millionaire before age 70.
You will never be any younger than you are today and the sooner you start to save the better chance you have to become a millionaire.
Excuse No. 3: I know nothing about investing, and I’ve heard that’s the only way I’ll be able to save for retirement.
While investing your money isn’t the only way to save for retirement, it arguably gives you one of the best opportunities to grow your savings.
Many employers will offer a matching contribution to a 401(k) plan. This can allow you to begin your savings without having to remember to set money aside after each paycheck – your employer will deduct your contributions before they cut your check. Contribute enough to at least receive the company match. The investment choices inside your plan will get you started on the right foot for building that retirement fund.
Even better, you can also outsource investing to a professional who can give you custom advice based on your circumstances and goals.
Don’t get hung up on the difference between an exchange-traded fund (ETF) and mutual fund or worry about whether you should invest in stocks or bonds. This is what the professionals are for! Let an investment advisor representative (IAR) manage your portfolio.
They will gather information, such as your risk tolerance and how long you anticipate staying in the workforce before retiring. They will also give you personalized investment advice based on your family financial needs, anticipated charitable donations, education planning, retirement goals, and other financial planning expectations you may have. Your advisor will discuss your current financial standing and help guide you through your agreed upon financial plan for your family and legacy. They will educate you on the basics of tax planning, estate and trust planning, and leave you feeling confident that you’re now on your path to millionaire status.
The bottom line: Use time to your advantage no matter how much you have. Starting early gives you the best opportunity to build your retirement savings, but even if you start later – START!
And remember, there are trusted professionals out there to help you through the retiree journey. Reach out to a financial advisor today to schedule that first meeting.
