You’re 40-Years-Old. Can you Still Retire a Millionaire?
Retiring a millionaire is really quite simple but it’s not easy. Otherwise, we’d see millions more people accomplishing this feat. Here is the basic math – to help you see daily, monthly and year what it will take to retire a millionaire. Or dream bigger and retire a multi-millionaire.
By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™
40 Retire a Millionaire
Nearly half of all families have nothing, zero, nada saved for retirement. Simply starting to save any dollar amount will put you above the average. Without full pensions average savings just won’t cut it for your dream golden years. You may have noticed the average person is not saving nearly enough. Every day, I help people plan for financial freedom who often will have a multi-million dollar retirement without ever breaking a sweat. It isn’t easy but it also doesn’t have to be hard.
You may be thinking OMG a million dollars is a lot of money and you’d be right. But if your income is above $50,000, you will likely need a nest egg of more than a million dollars to maintain your current standard of living in retirement. If you are living in a big city like Los Angeles or New York you will likely need a larger amount. (link to cost of living in Los Angeles)
However, it’s still completely possible to become a millionaire by the time you retire even if you don’t start until you’re 40. Whatever your age, get started! The sooner you start the easier it will be. To become a millionaire here’s what you’ll need to save.
How a 40 Year Old Can Retire as a Millionaire
Becoming a millionaire may seem like an impossible goal, so let’s break down exactly what you need to do. What will you need to save each day, month and year to have one million dollars by the time you reach 67? We are assuming you are just getting started but if you have some money saved, you are going to have an easier time hitting this big milestone. In the end, it really boils down to three things: time, compounding interest and savings.
A four percent annual return (approximately what average investors earn doing it themselves):
- $59 per day
- $1,767 per month
- $21,239 per year
A six percent annual return:
- $43 per day
- $1,308 per month
- $15,698 per year
An eight percent annual return (still well below the average return of various stock market indexes over time):
- $32 per day
- $954 per month
- $11,448 per year
A 10 percent annual return:
- $23 per day
- $688 per month
- $8,257 per year
Before you freak out it’s important to realize that these saving numbers can include things like a company match or profit sharing. You will also likely receive tax breaks for contributing into a retirement account such as a 401(k), IRA or 403(b). If this is the case for you, that means only 50-70% of the above numbers would be coming out of your pocket. Also, the more you make, the more beneficial the tax deductions will be.
Believe it or not, I’ve had people come to me who make millions each year but are in debt. On the flip side, there are those who make $50,000 per year and who have made it a priority to save $2,000 per month. When I was 22, I started saving a whopping $25 per month into a ROTH IRA. Overtime, that number has increased dramatically. I’m telling you all of this because the most important thing to do is to get started. Strive to save 10-20% of your income and start where you can. Maybe you are only able to save 10% of your income. That’s fine. Save 10% but set a goal, with a specific time, when you will increase that percentage. (I saved 50% of my income the year before I bought my house) (link to article).
Maximize your Hard work to Help Retire a Millionaire
Saving the money is your job. Maximizing the money is the job of a fiduciary financial planner like myself. As you can see from the numbers above the better your investment returns the faster and easier you can be a millionaire. Vanguard estimates that even basic financial guidance can add around 3.76% to your investment returns over time (link to article). According to DALBARs annual study the average investor earns roughly 1/3 of the stock markets return over time. No wonder so many people are afraid of investing. This dismal performance is often about investor behavior rather than picking the “right investmetns.”
At the very least, start investing in your employer’s 401(K) plan. If they provide a company match, make sure to get the full amount. THIS IS LIKE FREE MONEY!!!! Would you turn down a raise? I hope not. It’s important to realize that a 401(K) plan is a tax-advantaged retirement savings account. This means the money will be taken automatically from your paycheck and because it’s automatic, you likely won’t even miss it.
Beyond Millionaire to Financial Freedom
I truly believe anyone can achieve financial freedom and have it all. It just takes smart financial decisions and time. For those of you on track to become a millionaire and those who have already achieved this milestone, I have great news. The second million is even easier to achieve thanks to compounding interest. (Link to article)
The more you make the more you will need to retire. To get a better idea of what you will need to retire check out these retirement calculators.
Live for Today, Plan for Tomorrow
DAVID RAE, CFP®, AIF® is a Los Angeles retirement planning specialist with DRM Wealth Management. He has been helping friends of the LGBT community reach their financial goals for over a decade. He is a regular contributor to the Advocate Magazine, Investopedia and Huffington Post as well as the author of the Financial Planner Los Angeles Blog. Follow him on Facebook or via his website www.davidraefp.com
- Economic Policy Institute (EPI) reported Calculations are compounded annually at a rate of 8%. Also, the earnings are compounded and reinvested and do not take into consideration any tax implications and their effect on the investment. They are not representative of past or future performance but are provided for illustrative purposes only. The illustration is not indicative of any specific investment. Actual investment results will vary. This type of plan does not assure a profit or protect against loss in declining markets.