You Too Can Retire a Millionaire!

All you have to do is skip the coffee, save a very large amount of money, and assume an 8 percent return!

Photo credit: Andreia, CC BY 2.0.

I don’t know how many Billfold readers are over 50 years old, but today’s story—courtesy of Time Magazine’s Money section—is for you:

You—yes, YOU—can retire a millionaire! All you have to do, the article explains, is put $24,000 in a 401(k) every year between now and age 70.

Even starting at age 50, it is possible to save more than $1 million for retirement, according to research released in May by the American Association of Individual Investors (AAII). Or looking at it another way, even for those who have paltry savings by the time their 50th birthday rolls around, adding $1 million to their nest egg from that point forward is attainable. (Many 401(k) participants save less than the 15% of pay that is often recommended, data from Vanguard and Fidelity show.)

If the $24,000 they suggest you invest annually—which represents both the maximum 401(k) contribution plus the over-50 catch-up contribution—equals the recommended 15 percent of your income, this article is assuming you earn $160,000 per year.

Also, that you’ll keep your six-figure job for the next 20 years. Because you need to make those consistent $24,000 investments until age 70.

Maybe you earn less than $160,000 per year, or maybe you earn more but have other expenses that make it hard for you to save 15 percent of your income. You could be assisting your children with college tuition payments, or helping pay for your parents’ eldercare. No big deal. There are ways for you to cut back on your spending and still retire a millionaire! All you have to do is… wait for it…

Meeting that goal will likely involve changing saving and spending habits. Cutting habitual and often mindless day-to-day spending, like going to Starbucks for a $4 cup of coffee, is a start.

A $4 cup of coffee! You’re already spending 20 percent less than those people who spring for the $5 lattes. I’d consider that a financial win!

Anything else you can do to save money?

But for people who don’t have a history of saving, it may also require far bigger changes like downsizing housing costs or taking a second job.

I love that the advice we’re giving the Boomer generation is now identical to the advice we’re giving Millennials: just move, okay?

There’s one more thing you’ll need to retire a millionaire in 2037: a consistent 8 percent return. That could happen—right now we’re in the kind of financial situation where almost anything could happen, which is why health insurers are dropping out of ACA pools and wealthy people are avoiding making decisions with tax complications—but I’m reminded of my recent conversation with the anonymous quant:

I’m mentally preparing myself for losing multiples of my annual salary in my investment portfolio. And it also makes me realize how invested I am in our current economic system. The prospect of something like 2008 (or worse, since we’re waaaay overdue for a market correction) happening again scares the shit out of me.