First, let me show you how – theoretically – one can retire a Millionaire on a $50,000 income. Then, we’ll see how one can become a millionaire by retirement age with just the cost of a coffee a day, or $5/day contribution (if starting early enough).
For this, I like to use an official compound interest calculator from INVESTOR.GOV – a US official government website showing how money grows with the power of compound interest. Try this for yourself.
For our example let’s look at Ben, a 30-year old millennial making $50,000 in annual income. If Ben puts aside 10% of his income towards retirement in various investment and insurance vehicles, he could reach $1,000,000 by retirement age (age 65) if his money can earn an average of 9% interest over this period. The math is below:
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- 30-year old
- Income: $50,000/year.
- Annual contribution (10%): $5,000 (or $417/month).
- Compound interest – average interest rate 9%
- Years to retirement: 35 (retirement age 65, minus current age 30)
- Retirement savings at age 65: $1,079,000
Before you jump at me and say that there’s no way one can save $5000 a year from a $50,000 annual income after rent/mortgage, food and other costs of living in this economy, let’s remember that this exercise is designed to show you how it’s theoretically possible. Later on in this article we’ll go over how it’s ACTUALLY possible for you as well, with some shuffling of your current expenses and costs.
Another great exercise is to see what’s the smallest amount one can save to reach $1,000,000 by retirement? It turns out it’s ONLY $5/day saved, or the cost of a daily cup of coffee – if you start early at age 18. This is where I’d like to bring up the cost of waiting – the longer you wait to start building your savings nest-egg, the more you’d have to invest annually. But if you start early, you only need to put aside a small amount for the rest of your life and still reach your goals.
Let’s see how this math adds up:
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- 18-year old
- Savings: $5/day (cup of coffee)
- Monthly contribution: $150/month (30 days x $5/day).
- Compound interest – average interest rate 9%
- Years to retirement: 47 (retirement age 65, minus current age 18)
- Retirement savings at age 65: over $1,128,000
Not everyone’s budget looks the same. Hell, not everyone even has a budget or even looks regularly at their account to track expenses, revenues to see where their money is going to be able to plan accordingly. If you don’t know what your money is doing then you don’t know where you’re leaking dollars. A lot of the money you spend goes in the wrong bucket and that’s common for most people. Only 10% of people I interviewed said that they know where and how their money is spent and – not surprisingly – that’s exactly the percentage of population that retire with $1,000,000 in their retirement account by the time they reach 65 (please go fact-check this!). So, you just have to pay attention where and how you spend your income.
10% of US population retire as a millionaire+
Source: Yahoo! Finance
In the US currently about 1-in-10 (or 10%) have $1,000,000 or more in retirement. What was your guess? Did you expect more, or less??
Now, let’s do a mental exercise: think of ten of your closest peers and try to guess which one of the 10 will be the millionaire retiree? Will it be you? CAN it be you? You COULD be the future retired millionaire with a little bit of grit and persistence. The tools are out there, available, just need to steer your goals in the right direction.
How do you even find the dollars to save, when all the income you make is spent almost as soon as it hits your account?
Let’s find your funds to finance your future. I can show you can you can better fund your retirement, lower taxes the right way, pay off your debt and learn how to leverage your equity in your favor, without changing much of what you’re currently already doing.
Check my appointment calendar for an available appointment – Hurry! The holiday season is upon us and my schedule is getting filled fast.
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