Are you between the ages of 21 and 35? If you are here are some tips that can help you in your quest to retire rich. Normally at this point in your life you are not thinking of retirement but I am thinking you may want to at least retire rich. By making at least modest contributions to your IRA and 401(k) plans the power of compounding will amaze you in ways you never imagined. If you do not believe me go into Excel and use the future value function and plug in some returns and contributions and see for yourself.
As an example of this I started your first job at age 22 with you saving $200 a month. Not an unrealistic goal with some proper planning. Now we will assume a return of 8% which is not totally unreasonable over a long term investment in equities. After 10 years you will have about $37,000, after 20 it will be $122,000 and at age 67 you will have an amazing $1.2 million in your retirement account. Not too bad for just saving $200 a month and never increasing the rate of savings. If you get to the point where you can contribute the full amount allowed in an IRA which currently is $5,500 you would have about $2.8 million at age 67. Talk about having your money work for you and yes this is the power of compounding.
Many financial planners suggest you save at least 10% of your salary and no I am not including any company match here when calculating the savings rate. You need to put 10% of your salary into your 401(k) plan but under no circumstance should you not contribute at least the maximum that will have a company match. Therefore if you company matched the first 5% you contribute at least contribute that amount. Then get it to where you are contributing 10% of your salary and with the match it would be 15%. Not a bad way to save and retire rich. By contributing to your 401(k) in the same manner as your IRA you will be amazed again by the power of compounding. The main key with a company 401(k) is to never leave any free money on the table and get the most out of your work retirement accounts.
If you do not have a work 401(k) and your adjusted gross income allows it fund a ROTH IRA. As you know from my previous posts I am a huge fan of the ROTH accounts. And as a side not if your work offers a ROTH 401(k) contribute to that as well as there are no income limitations on a ROTH 401(k).
If you are self-employed look into a SEP IRA as the contributions are higher than that of a Traditional or ROTH IRA. Check with your CPA on the limits for any particular year and the tax advantages that you may get with your company. This is also an option for employees you may have as you are allowed to fund their SEP IRA’s as well. But make sure you follow IRS rules and regulations as they may nullify your IRA if they are not followed correctly.
And when possible pay off student loans as fast as you can to start saving for a house, a child’s education, or your own retirement. And look into ways that will reduce your interest rates on the loans such as automatic drafts and never missing a payment. Also make sure you take advantage of any tax breaks that you may be eligible for as they are dependent on your adjusted gross income. Check with a tax professional for additional information or contact a financial planner.
It is never too early to start saving, planning, and thinking of your retirement. Start early and develop good habits that you will not break over time. With proper planning and good solid work you will be more than able to retire rich. If you have any questions or need any help feel free to contact me and I will do my best to help you.
