The key to making your golden years truly golden is wising up and having a $1 million retirement nest egg. You may not exactly become a jet-setter or live in chateaus and palaces, but your life will definitely be easy and comfortable. An added bonus would be to have the benefits from Social Security as well. Though if you are that well off, you may not even need Social Security and may considering not even signing up for it.
But most likely you will not reach that plateau. Here we focus on bolstering your retirement beyond what Social Security can provide which should be everyone’s goal.
Following the 4% rule will enable you to withdraw a minimum of $40,000 annually, which can help your nest egg last for three decades after retirement. For those of you wondering what the 4% rule is, it is one of the most efficient ways to gather information on how much money you can generate per month from a nest egg worth $50,000, $500,000, or $1 million.
Saving $1 million seems virtually impossible, but you can do it even on a middle-class income provided you are disciplined and your retirement is well-planned. Here are a few tips to help you ensure a $1 million nest egg:
Start Saving Early
If you can push yourself to save $405 a month by your mid-20s, this equates to an average return of 7% per annum, meaning that by the age of 65, you will have $1 million. However, you will have to save as much as $585 every month to get $1 million by the same age if you start saving at 30. If saving hundreds of dollars is hard for you to do, then try saving at least something, no matter what the amount. Setting up an automatic withdrawal from your bank account or your paycheck will set you on the right path.
Do not Live beyond Your Means
Earning more and spending less are two of the most effective ways to save money, where the latter is obviously the easier option. The classic book The Millionaire Next Door authored by Thomas Stanley and William Danco points out that people whose net worth is over $1 million typically achieve this goal by earning more and spending less. The exact opposite of what the federal government does. Their code is obviously different.
These millionaires usually maintain a modest yet comfortable standard of living throughout their careers and then after retirement. Rather than lavishly splurge their raises, bonuses, and windfalls, if they receive any, they save this money. If your spending limit is as high as your earnings, then you will have very little to show for it, no matter how much you earn. Your savings will quickly grow if you save at least 10% of your income, cut down on expenses, and save your raises.
You will lose over $1,000 in interest annually if at a 22% APR you are paying a credit card balance of $5,000. Even if it means having to put a stop to your savings for a year, debts should be cleared up as quickly as possible. You are not guaranteed a 22% return through any investment. Debts – and credit card debt in particular – should be seriously taken into consideration going forward and if you were taught this at a young age then perhaps you avoided having a debt catastrophe but if you were not, now you know. Paying high interest rates on a debt is akin to just throwing money away.
You should be careful on what you spend on vehicles in your life. While financing a vehicle, using the 20/4/10 rule helps a terrific deal. “What is the 20/4/10 rule?” you ask? It is as simple as this, you should put at least 20% of the vehicle’s worth down right up front, finance the vehicle for no more than 4 years, and keep the overall monthly expenses which include insurance, maintenance, principle and interest, under 10% of your gross income.
Maintaining Commitment to Save for Life
You should commit to saving for as long as you live. You may be faced with some hard times such as getting laid off from work or having a medical emergency but if you save consistently for many years, you should be able to still retire comfortably. In addition, while $1 million should be the ultimate goal, do not consider it a shortfall if you do not reach your target.
Even if you manage to save up just half of that amount, you will still have a decent enough income to be able to make use of social security benefits during retirement. A $500,000 nest egg will still be able to provide you with as much as $20,000 per annum on top of social security payment. If you make a plan for a $1 million nest egg and you reach that plateau, you will have a comfortable retirement and enough for an emergency as well.
As mentioned, you may not necessarily be able to save as much as $1 million for your nest egg. But if you want to make sure that you live a life of ease and comfort during retirement, it is best to live modestly during the course of your career and to save plenty. Try not to live beyond your means and spend less than what you earn and you can be sure that your golden age will be exactly that: golden.