Finance Week- Who Wants To Retire a Millionaire?

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!!!


Scarlet O'Kara said...

I met my husband while doing some financial planning as a single 20-something. He helped me set up a retirement fund, life insurance policy, and will.

In October, we will be married 10 years. Both of our daughters already have their savings plans that will make them millionairs too.

Belle in Bloom said...

I'm loving this already. Can't wait to learn more!

Anonymous said...

I can't wait for this series. I do need some help in saving $$. Boy can I spend it!! No help needed there.

BTW I love your blog! I have a link to it on my blog. I wanted to let you know I nominiated you for "Hottest Mommy Blogger" for the 2008 Blogger's Choice Awards. Check it out here...

aka The Write Gal

Clare said...

Tahnks for the fabulous money tips...been saving since i was right out of school, so hopefully I will be in good shape. although the stock market sucks right now!!

SassySouth said...

Thanks for the great advice! Love your blog!

declanium said... husband and I are 44 and 42, respectively, and have always been careful planners....we put away $1400/month and I thought we were putting away almost TOO MUCH....but according to these calculations, maybe not???

Tres Poshe Preppy said...

I love things like this and have read lots on it. I always find it very interesting how people spend/save their money. I unfortunately am a spender so my future husband needs to be a saver-note for you! ;-) Although, I'm getting better at paying myself first. Age will do that to you!

I use my Amex card a lot and when I get the year end statement (they break it all down by items & places) it's frightful to see how little things- Starbuck's,etc. add up. VERY scary actually. Having that visual hit home for me as each month it doesn't seem like that much. I'm much more aware of things like this than I was a few years ago.

Did you ever do the Oprah debit diet? That was fun.

Can't wait to hear more! I think things are out of control for most people right now! My parents lived below their means and I personally think it's hard for most American's to do that these days. We feel so entitled.

Linney Shvede said...

My kids are teens and I've already started beating this in their heads. I'm afraid a million won't be enough to retire for's scary...

Europafox said...

Oh how I wish I could save!! But it's the old dilemma - bags, holidays, cocktails, adventures - or bonds and mutuals? I am SUCH a slacker ;)

Kate said...

I started saving as soon as I started working/babysitting. Recently I haven't been saving as much but this definitely inspired me!

Always Organizing said...

Looking forward to learning more ways to cut back!

ps. What is Kenady's tilapia?

Polo Mama to Girls said...

Great post - I love reading about financial planning. Putting it into practice, though, is the difficult thing. Did you ever hear about a "rule" for how many times your salary you should have saved by ages 30, 35, 40, 45, etc. in order to be able to retire? I heard something about that once, but don't remember the details.

Love your blog!

Lauren said...

I am glad you wrote this post because I don't think most people understand the time value of money. Out of all of my friends (mid to late 20's) only a handful are on track to be able to retire at 55 - 65. It is just so much cheaper to start saving early.

My husband and I are planning to retire at 55, so we have been working towards that. It is so much easier when you pay yourself first (btw, I love that concept from David Bach).

I think a lot of the financial problems people are in now is a result of them living above their means and not having enough money saved for emergencies. I have heard that most people are 1-2 paychecks away from bankruptcy.

I hope you enjoy your week!