Monday, July 28, 2008
Hubby and I have had money struggles and continue to. The older we get, the more expenses there are. Add kids to that and whammo. Most young people (okay I'm not that young but I'm still in my thirties!), either have no clue about saving or putting money away, or just think they can't because they don't make enough. The truth is, the earlier the better! When you're young and haven't started a family it's time to start saving! Get to it!!!!!
Hello compound interest? It's me The Mrs. Why the hell didn't I start saving sooner?
Mellody Hobson (love her) was on GMA a couple weeks ago and had some fabulous advice. Here's her answers to the big burning question:
How can I retire a millionaire?
At Age 25
At 25 years old, if you can save $75 a week, or $300 a month, in a mutual fund with an average return of about 8 percent, you would have $1 million by the time you turn 65.
The first place to start is with your employer's retirement plan, such as a 401(k). While I always advise maxing out your contributions, this is not always possible, so at a minimum, be sure to contribute enough to qualify for your employer match. According to the Profit Sharing/401k Council of America, about 78 percent of employers offer some type of match.
Not taking advantage of this is the same as passing up free money. If you don't have an employer retirement plan, definitely invest in a Roth IRA if you meet the income requirements, or a traditional IRA. Twenty-five is also the age to start an emergency savings fund (with three to six months of living expenses) as well as to pay down any outstanding debt and be sure to avoid building up new debt.
At Age 35
If you haven't saved anything yet, you will need to sock away $671 per month (also in an investment earning 8 percent annually) to reach $1 million by 65.
Again, first and foremost, take advantage of your 401(k) plan. If you can, contribute the maximum, which is $15,500 in 2008. You also may want to consider other savings vehicles that offer tax advantages, such as your home state 529 plan if you have kids.
That said, keep in mind, your retirement savings must take priority over saving for your kids' future education expenses. There are multiple options for your kids to finance their higher education, and they will have their whole careers ahead of them to pay off any loans. But, as I have said many times, there are no scholarships for retirement.
At Age 45:
If you're starting from $0, you will need to save $1,698 per month (again at an 8 percent annual return) to make $1 million over the next 20 years. While the pressures on your finances may be greater at this age with growing children and aging parents, it is critically important to keep at it and save for your own future.
If possible, contribute the maximum to your retirement plan and also invest in an IRA. The bulk of your savings — or 80 percent — should be in stocks, with the remaining 20 percent in more conservative investments like bonds.
While I am biased toward stock investments, I have always counseled diversification across different types of stocks, which helps to mitigate risk. To that end, make sure you are not overweighted in company stock and that your equity diversification is made mutual funds instead of individual securities.
At Age 55
If you have no money saved, it becomes very difficult to get to $1 million in 10 years, but you can do it if you save $5,446 a month in an investment with an average annual return of 8 percent.
In addition to maxing out your contributions to your employer-sponsored retirement plan, also take advantage of catch-up contributions, which allow you to contribute an additional $5,000 per year. At this stage in your life, your investments should be 75 percent stocks and 25 percent bonds.
If you are starting with little or nothing in savings at this point, you definitely should consider working past 65 years old. Not only will your retirement savings be greater, but your Social Security benefits will also be higher.
Okay that was the real deal but you needed to know the facts. Don't get scared, just make a plan (we'll get to that later in the week) Who's ready to start being a millionaire? Tomorrow, we'll look for ways to cut back so you have more money to save!!!