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Retirement: Save a Million Dollars Right Now

By | Save Money

Retirement

Retiring as a millionaire may be easier than you think. With the power of compounding interest, you can become a millionaire by putting aside just a few extra dollars each month.

How Much Do You Need to Save for Retirement?

Here’s how much you need to save each month and how long it will take to reach a million dollars if you invest in an S&P 500 index fund. These numbers assume the index matches its historical ten percent per year rate of return.

  • $100 per month = 45 years
  • $250 per month = 36 years
  • $500 per month = 29 years
  • $1,000 per month = 23 years
  • $2,000 per month = 17 years

The lesson learned? Anyone can become a millionaire by setting aside only a small amount of money each month over their working life. If you got a late start or want to retire early, you can still get there with smart budgeting.

Where to Save

Warren Buffet recommends S&P 500 funds because they let you own 500 of the strongest companies in the United States at a low cost. Other investors prefer to use total stock market index funds that own every stock on the stock market or to put some of their money into an international index fund to add diversification.

You may also want to consider a target-date fund which gives you a mix of U.S. stocks, international stocks and bonds and automatically lowers your risk as you get closer to retirement. No matter what you choose, how much and how early you save will be the biggest driver of your success.

How to Find the Money

It can be hard thinking about the future when money is tight, but small adjustments add up. Instead of buying things because they’re only $X per month, remember that only $X per month will make you a millionaire.

Simple steps like packing a brown bag lunch and skipping a barista-made coffee can save $10 to $20 per day. If you have credit card debt, paying it off sooner or consolidating it at a lower interest rate can turn money wasted on interest into retirement savings.

The most important thing to do is to start right now. Remember, the sooner you start, the easier it will be to become a millionaire.

 

Sources:

http://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

https://www.forbes.com/sites/robertberger/2017/03/27/an-sp-500-index-fund-is-it-a-good-investment/

http://www.investopedia.com/terms/t/target-date_fund.asp

Financial Milestones – Roadmap For Success

By | Personal Finance

While there are many financial milestones to celebrate at every age, some of the most significant milestones could be life-changing.

From getting that first paying job to putting a college degree into practice, these milestones can form some of the greatest memories and set a financial foundation for success later in life.

Knowing what financial milestones are important will help you get a head start on planning and be able to work toward a successful financial life.

Your Financial Milestones Roadmap

Financial Milestones

Becoming an Adult (18-29)

What many people don’t realize is that between the ages of 18 and 29, you should be working on your first financial milestones. On top of landing your first job and buying a new car, you may take out student loans to attend college. To qualify for good interest rates, you’ll need to start building your credit. You could take out a line of credit or get your first credit card, as long as you use it responsibly. If you’ve already made some mistakes with credit, don’t stress too much, you are still fresh in the financial path so use this time to invest in credit repair to get yourself back on track.

Pay any loans or student debt on time each month, and be mindful that any debt you obtain will need to be paid back in the end. You may also plan to move out of your parents’ house and want to start looking for a home to rent or buy. Having good credit will make these goals easier to obtain. A great way to build credit while paying rent, is to use a rent-reporting service to get your rent payments on your credit report.

You should also start planning a budget and learn about investing. You may have the opportunity to start a 401(k) — especially if it is available through your employer and sometimes they will match a certain percentage, you should definitely take advantage of this. If a 401(k) is not provided through your employer you can look into a Roth IRA for your investments, if you have the option to do both, you should. This will give you a solid financial foundation that will carry you far later in life.

In Your 30s

By your 30s, you should be enjoying a comfortable place to live and perhaps owning your own home. You may have several retirement accounts, whether you have a 401(k) or a Roth IRA, continue making contributions to those funds and increasing that amount when you can in order to get the most return. If I said I would give you free money wouldn’t you take it? Keep improve your knowledge of investing by studying up on exchange-traded funds, stocks and bonds, as well as funds that can be matched by your employer. If you are fortunate enough to work for a company that has matching 401(k) make sure you are maxing out that opportunity.

This may be a good time to diversify your investments, choosing from a variety of stock options and markets, such as real estate or commodities. You should also be investing in yourself, pursuing an advanced degree or professional development that will accelerate your career.

In Your 40s

By your 40s, your retirement accounts will continue to accrue, and you should have started investing or saving money for your children’s college expenses. Look into a 529 plan or other college savings plans to see which one suits you best. Max out your retirement funds so that you can leverage them later in life, and contribute up to 6-8 percent of your earnings to get the most out of employer matches.

Reward yourself for achieving financial stability, make sure to make a “vacation” savings account so you can be enjoying this hard work you have been doing. Discuss health care needs with your parents in order to avoid surprises later on. Also it may be a good idea to start an investment account that is separate from other accounts, and set it up to automatically draw funds. With the help of a financial advisor, you can turn these funds into moderate-risk investments that you’ll benefit from down the road.



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In Your 50s

By your 50s, you may have started thinking about retirement and be counting down the years to the big day. Sit down and make some calculations to determine your family’s current financial needs, how much you will need in your retirement, and what your goals are for this stage and on in your life.

For your financial milestones, consider buying a vacation home, timeshare or rental property, which you can lease out in order to generate extra income. Learn about financial options available, such as Social Security, Medicare and pension benefits. Resist the urge to withdraw funds from your retirement accounts prematurely, unless you are prepared to pay large penalties.

In Your 60s

By your 60s, you may decide to retire. Your golden years can also be a time of resilience or unpredictable life changes, so each individual will face something different at this stage. You can start collecting Social Security and planning for the long term, so your retirement and health care funds last as long as you need them. Make sure your will is filed and updated. You may also want to consider changes at home, whether that means modifying your house to age in place or moving to a retirement home or supported community.

In Your 70s and Older

By your 70s, you will likely be well into your retirement years. It might even be beneficial to produce hobby work on the side and sell it at community fairs. This is a crucial time to look at your finances to decide if you need to cut back on spending or if you can be generous with charitable gifts. Ensure that any withdrawals follow a predictable, stable plan, and use your money wisely. By your 80s or 90s, your life will have changed more than you ever imagined it could. This might be a good time to downsize and move into a smaller home that suits your life as it is now. If your retirement funds have made it this far and you can still afford some degree of charitable giving, you’ve done well.

Tracking your financial milestones and setting goals, will help relieve the financial stress that pursues when you have not prepared yourself. With careful planning, saving and investing, you can ensure that both you and your family will be cared for well into the future.

Resources:
Reuters
Money
The Balance
Clark

6 Things to Know Before Investing in a 401(k)

By | Budgeting, Personal Finance

While retirement may seem eons away, it’s never too early to start funding a retirement account. Parting with part of your paycheck each payday may be hard to swallow, retirement accounts offer many benefits outside of funding your future retirement.

Retirement accounts offer many benefits, but there is a downside as well. Here are 8 things you need to know before investing in retirement accounts:

  1. Tax Breaks

Putting money towards retirement while young allows your investments time to mature and for you to earn returns. You can decide to put money away in a savings account, but other options provide tax shelters. Investing in a 401(k), IRA or other dedicated retirement account provides a tax shelter that boosts your annual return.

  1. Employer Match

Many companies offer 401(k) plans where the employer matches the contribution of the employee. Forbes reports that the majority of large companies will match an employee’s investment, while only two thirds of small companies do. Make sure to review and understand your 401(k) contribution vs what your employer will invest prior to signing.

  1. Early Withdrawal Penalties

Deciding what amount to invest in a retirement account can be challenging. Life offers many surprises that come with unexpected expenses. You may have chosen to allocate a certain amount of funds from your pay to retirement leading to a large sum of money that you may need for future expenses. If you do need to access your retirement savings before the age of 59.5 you’ll most likely be subject to a 10% penalty on previously untaxed funds, contributions and earnings.  There are exceptions to this. As Forbes reported, you can pay for college or grad school penalty free with funds from and IRA account but not from a 401(k).

  1. Flexibility

If you’re looking for flexibility with your retirement account look into a Roth IRA. Legally you are able to contribute up to $5,500 a year in post taxed earnings to a Roth IRA. If you’re over the age of 50 your contribution maximum increases to $6,500. Your investment will grow tax free towards your retirement, and you can take back your initial contribution at any time for any reason without taxes or penalties. Forbes suggests investing enough in your 401(k) to receive a full employer match then fund a Roth IRA next.

  1. Bad 401(k)s

Not all 401(k)s are a good investment. Some 401(k)s have high administrative and investment expenses. According to an annual survey conducted by BrightScope, the most expensive 401(k)s – traditionally small plans – cost 1.53% or more of a worker’s contribution each year. Compare your 401(k) at BrightScope.com.

  1. Switching Jobs

It’s very common to switch jobs before retirement. When leaving a company make sure to role your 401(k) to an IRA on your new employer’s 401(k). This is called an institution to institution transfer. Withdrawing the funds from your existing 401(k) would be a mistake, since it would result in taxes and a 10% penalty fee. If you have a retirement account worth less than $5,000 your former employer could transfer your funds to an IRA with high fees and a negligible returns.

Investing in your retirement is an important and vital decision. Review all your options before investing. Was this article helpful? How do you plan to invest in your retirement? Let us know in the comment section below.

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