When do you want to retire? How much do you need to retire? Retirement is so far away though. I’ll start saving later. All these questions and statements are commonly thought about. According to USA Facts, almost half of American households have $0 in retirement savings. They also state that in 2022, only 9% of American households have saved more than $500,000 in retirement. If you want to acquire wealth and be able to stop working and pursue other passions in life, then you need to start investing.
Where do you start?
Retirement doesn’t have to be complicated. You first need to start with a plan. Once you have your current financial situation in check, then you can start envisioning what you want your future to look like. Do you want to buy a house on the water? Do you want to buy that $100,000 truck? Do you want to purse a hobby that won’t bring in much income? What’s important is that you figure out what you want to achieve so you can find the best plan to accomplish those goals.
Investing Vehicles
Companies generally offer retirement plans and matches for contributions. It may be a good idea to take advantage of these benefits. These investing vehicles are usually 401K plans which are pre-taxed dollars. It may be worth seeing if your company is offering Roth 401K plans which is post tax dollars. This means that if you have one million dollars in a regular 401k, you will have to pay taxes when you withdraw the money later in retirement. So you may actually only have $750,000 of that million. Whereas if you have one million dollars in a Roth 401k, then you have one million dollars because the money you invested has already been taxed. A lot of government jobs offer pension plans. This is when you invest money during your working career which then produces retirement income. These pension plans are less popular now.
Personal Investing
You can invest in your own retirement plan called a Roth IRA. Anyone can open a Roth IRA if you have earned income. This account is post tax dollars meaning your money will not be taxed when you withdraw it in retirement. Although a Roth IRA has lesser yearly maxes, this is still a great way to invest for retirement along with your company sponsored 401K plan. It is important to not just have diverse investments, but to also have a diverse retirement portfolio with multiply investing vehicles.
Why Invest for Retirement?
Ill worry about retirement when I’m older. I just want to live in the present. Although it is important to be present, you also miss out on a lot of opportunities by not thinking about your future. The power of compounding interest in retirement accounts will pay dividends if you have a long term mindset. These accounts are not a get rich quick thing. It is very costly if you pull money from any retirement account before 59 and a half years old. You will be hit with fees and penalties that will cost you a lot. The idea of a retirement account is to set money aside for your future that will compound daily and grow substantially over the next few decades. Check out the post on compounding to understand more on how powerful it really is.
Why One Million Dollars?
If you had one million dollars in a Roth IRA and you were at retirement age, could you live off it until you pass on? If you are in a quality investment making 10%, that’s $100,000 a year solely on interest. Can you live just on the interest?
Retirement isn’t so Scary
With the proper information about retirement, you will be able to feel confident in your plan for success. It is important for you to know that you can save one million dollars and retire at 65 as a blue-collar worker. You don’t have to make six figures a year to be able to do this. It comes down to discipline and consistency over a long period of time. Sure, making more money can make saving a million dollars faster and easier, but unless you have a clear budget and spend less than you make you will not achieve this. There is no get rich quick scheme about saving for retirement. Its about putting in the hard work day in and day out and eventually you will look up and see that seven-figure number. Be confident that you can do this, because I believe you can.