You are in your 20s:
Twenty-somethings are fresh to adulthood — finishing up school, building networks, establishing their careers and making moves. However, the biggest advantage they have, is time. The more time you have, the less it takes now to reach the million dollar mark then. So how do you do it? Well, for starters, you must start thinking about your retirement now — which is primarily the biggest challenge with this age group.
It’s easy to get sidetracked by traveling often, splurging on luxury items, or simply spending more, because you make more. This frame of mind, will only leave you financially unprepared for years to come.
It’s also important not to forget inflation and how life changes may affect your finances over the course of time (e.g., starting a family, buying a home, etc.). It will be more difficult for millennials to fund their own retirements, when compared to older generations.
Your strategy should be:
Because you have time on your side, you have more options when it comes to investing and managing risk. Experts suggest contributing 15%-20% of your annual gross income to retirement savings. It may sound like a considerable amount, but it can be done.
If your employer offers matching contributions to your retirement account, this can also make it easier to put more away for your future. Make the necessary contributions to receive a match from your company. Otherwise, you may just be leaving money on the table.
Nevertheless, remember that retirement accounts, such as 401(k)s are risky investments that are not guaranteed. Think twice before investing all of your money into your retirement account. Diversify across multiple investment vehicles to ensure you minimize risk and can access your funds should you need to. Trying to cash out a 401(k) before the allotted age will cost you heavily — you’ll incur early withdrawal penalty fees and have to pay taxes on the amount withdrawn.
Kiplinger suggests 25-year olds, with $0 saved, should start investing $286 per month in high-yield investments with annual returns of 8%, in order to reach $1 million by age 65. Consider a non-institutional investment such as the limited partnership opportunity offered by Jakob Pek Fund, for a lowisk alternative yielding returns of up to 6%.
You are in your 30s:
By this point in your life, you should have a decent financial plan and budget set in place for your future goals. At a time when financial responsibilities begin to add up, it is important to continue saving for retirement. The worst thing you could do at this age,is make it your last priority. Time is still on your side and it is up to you to use it wisely, to ensure a comfortable retirement.
Once you have your financial priorities in place, search for the best investment vehicles for both your short and long-term goals. Although it may be difficult, making retirement your first priority now, will still make it very possible for you to retire a millionaire.
Your strategy should be:
In your 30s, you still have the opportunity to let your investment accrue a considerable amount of interest over the course of 30-35 years. Just make sure your investments are earning high-yields, rather than staying stagnant in low, interest-bearing accounts. A 30 year old who invests $20,000 in a Limited Partnership investment with Jakob Pek Fund for 30 years at a 5.50% APY, can expect that money to increase to $252,517.88 (with $2,000 in annual contributions) by the time they are 60 years old.
For many, the idea of saving for retirement, solely requires investing towards an employer 401(k) plan, or other retirement account. This is not the case. Contributing to your 401(k), if your employer offers a match, can help grow your retirement savings past that million dollar goal. However, in order to maximize your investments, your approach as an investor will have to be between moderately aggressive to very aggressive — meaning high risk is involved. Retirement plans are often heavily vested in various volatile and unpredictable markets — especially when your yields are high.
A combination of investment options in your 30s, can help multiply your savings and minimize risk across multiple asset classes.
You are in your 40s or 50s:
Those in their 40s (and 50s) know that life doesn’t just slow down over the course of time — quite the contrary, for some, actually. These individuals are in their prime when it comes to their careers and life itself, but financial responsibilities do not necessarily subside. Many are reminded daily of preparing for retirement, while managing careers, growing families, aging parents and rising health concerns.
Even when life seems to be requiring more energy and financial resources from you, it’s important to stay focused and remember that retirement is not too far out the horizon. This is why it is essential to do all you can to boost your savings for the years ahead.
Your strategy should be:
With each decade in your life, you need to ask yourself, “How much investment risk should I take?” The younger you are, the easier it is to make risky investments, because you have more time to make up losses and recuperate your money if something were to happen. This, however, is not the case for those in their 40s and 50s. As tempting as it may be to take on highisk investments to help multiply your savings at a faster rate, you should reconsider and search for lowisk options that maximize your savings instead.
According to Kiplinger, those who are 45, with no savings for retirement, will need to invest $1,698 every month in high-yield investments offering returns of 8% in order to reach one million by the age of 65.
Now, let’s say you’re 45 years old and have $300,000 invested in the stock market and savings combined. If you were to invest those $300,000 into a limited partnership with Jakob Pek Fund, your savings would be compounded annually at a rate of 6.5% to equal $1,057,093.52 by the time you turn 65. Even a $100,000 investment with $5,000 in annual contributions, compounded at a 6% annual rate, over the course of 20 years, can grow to $515,677.18 — a considerable return for a lowisk, investment in real estate.
You can also consider maximizing your 401(k) contributions. According to IRS.gov, the amount you can defer as pre-tax or designated Roth contributions to all your plans (not including 457(b) plans) is $17,500 in 2013 and 2014. For those reaching 50, your individual limit is increased by $5,500 (in 2013 and 2014) (the catch-up contribution amount). This means your individual limit increases from $17,500 to $23,000 in 2013 and 2014 even if neither plan allows age-50 catch-up contributions.
Additional Strategies to Consider:
No matter your age, living below your means, will definitely allow you to save more for your golden years. For many, it will feel like a challenge at first (and a daily struggle), but remember you’re not alone. While those around you live lavishly (or seem to be) you’ll have the peace of mind that comes with not having to depend on your adult children, or anyone else when retirement comes along. Living below your means and investing proactively towards the future now, will prepare you for comfort when you are over 65 years old.
Additionally, those who are closer to retirement may even consider moving to a state that offers retirees more benefits (and possibly even more sunshine). Considering a big move, but not sure where? AARP lists the 10 best states for retirement here.
Want to check how long it will take you to reach a million in savings? Check out this calculator by CNN Money.