How to Retire Wealthy

This is a Guest Post by Fellow Yakezie Member, Derrick from Life and My Finances.

Personally, I love the name of this website, “My Journey to Millions”. Perhaps some of you think it’s egotistical to proclaim that you’ll be a millionaire, but I’d have to say that you’re dead wrong. We should all be on our journey to millions! If we aren’t, then I’d have to say we’re selfish.

If we are not currently planning for our retirement (which should include a nest egg of at least a million dollars), then how do we plan to survive in our elderly years? Will our children be taking care of us? Will we expect that of them since we so graciously raised them? Frankly, I hope this isn’t part of your planning. You are responsible for your own future, your children are not.

Follow These Steps to Wealth

Get Out of Debt

If you currently have consumer or credit card debt, you must pay this off first. There is no logic in paying interest on items that should have been purchased with cash (ie. your car, kitchen appliances, furniture, clothing, etc.). Use the debt snowball method and pay off one debt at a time (while paying the minimum payment on all of the others). Once one debt is paid off, put that payment toward the next debt, and so on, until all debts are paid for.

If you still owe money on your house, focus on paying that down as well. A house loan should be taken care of in 15 years or less to avoid obscene amounts of interest payments (with a 30-year loan, you’ll most likely pay more than double the value of your house, even with the low interest rates currently).

Invest

After you pay off your consumer debt, begin investing about 10% of your income. Since you are no longer making those monthly payments on your consumer purchases, investing 10% should be no big deal.

If your company matches a 401(k) contribution, be sure to fully utilize this match. After all, it’s basically free money in your pocket. If your company does not have a match, contribute your 10% into a Roth IRA and allow it to grow tax-free.

Nest-Egg?

Most advisors would like you to have at least $2 million in a nest-egg before retirement. I don’t fully agree with this strategy. While I think that acquiring $1 million is wise as a “just-in-case” fund (as previously stated in this article), I think it is foolish to depend on one lump-sum of cash to get you through your retirement years.

Let’s say you retire at age 62 with $2 million in investments. Because you are severely dependent on these funds, they may be placed within bond investments or money-market accounts. These may seem safe, but they are not 100% guaranteed and may only show limited growth. Between your yearly cash withdrawals, increased medical expenses, inflation, and the limited growth of your funds, if you live to be 90, there might not be anything left in that nest-egg! What if you withdrew an average of $75,000 per year (a very modest amount considering all of the factors), your $2,000,000 would be gone in 27 years. Now, what if you acquired a life-threatening disease after retirement (not out of the ordinary)? Those medical expenses could easily rack up to $500,000+ in expenses. That would deplete your savings even faster.

The Better Plan

Since our lives are ever-changing and dynamic, why do we invest as if they were static and unchanging? Rather than investing our money in one big pot, I say we should develop some constant cash flow from other sources (while contributing that 10% into our “just-in-case” fund)!

Instead of investing all of your money in mutual funds or the stock market, create some cash flow through a business of your own! Many of us have dreams of starting our own business and creating an income even when we’re not there. I say do it! Start small (with cash) and expand as your business grows. If you want less involvement, develop a system and let someone else grow it for you. Once you do it once, develop another business. Get as many income streams coming in as possible. The more income resources you have, the less likely you’ll be affected by a financial downturn.

Of course this is not easy and may take some time. This is why it’s important to start now!

This post was written by Derek from Life And My Finances. Since his job did not allow him to utilize his degree in Finance, he has started his own website.

12 Responses to How to Retire Wealthy

  1. The hardest part of planning for retirement is figuring out how long you will live! If you underestimate it, you have a major problem. Multiple income streams may help in that respect. The quality of your life is another unknown. Medical and Long Term Care insurance is important to maintain a decent quality of life. I plan on living to a 100, so I have all these in place. If I underestimate my longevity, I am still okay.

    • You’re right krantcents! Because I’m so young, my average lifespan is something like 92 years old! So, even if I’m only slightly above average, 100 years is not out of the realm of possibility.

      This is really why I prefer ongoing residual income. It’s more easier to predict than living off a lump sum. :)

  2. Hi Derrick,

    Playing Devil’s Advocate:

    What’s the whole 10% in retirement thing about? What I was forty years old and 10% of my retirement income was only $300 a month? Is that enough to become wealthy?

    My point is that 10% is too arbitrary of a number if a person is much older than twenty. Also, it depends on what number that person has his or her mind set on.

    Romeo

    • Romeo,

      Often, retirement funds are dependant upon earnings, and if your income is low, most of your earnings will be used for the necessities: food, clothing, etc. Thus, 10% is still a good benchmark for your investments. It may not allow you to retire rich, but at least it’s something.

      With this article, I’m trying to get people to think about cashflow and income rather than that “lump sum” of portfolio investment money. The 10% is merely a safety net in the event that one of your ventures does not work out as planned.

  3. Unfortunately my grandparents did not save a cent towards retirement. They live solely off of social security, and it’s sad to see them held back.

    I am an avid retirement-saver, and ofcourse I have my blog business as well (though I guess that is not passive income as it takes a lot of work!).

    • I think you’re on the right track though Amanda. Have you ever thought about hiring a Virtual Assistant and starting another blog? Or, perhaps you could write an eBook for some passive income?

      I commend you for learning from your grandparents’ mistakes, and I know you’ll do great with the choices for your financial future! :)

    • So far, I am very much in the beginning stages of this plan.

      My wife and I recently eliminated all debt, I have started my blog (which is already generating upwards of $500 a month), I have a small investment portfolio started (and is growing every week), and we are in the process of purchasing a house (which will be our first rental in a few years).

      We found a house that we can fix up for pretty cheap; we’ll pay off the mortgage within 3 years (pretty easily), and then rent it out while we purchase another one. That will be the beginning of our real estate investments.

  4. I like the idea of avoiding the lump sum. The further into the future you are trying to budget for, the more difficult it becomes. Residual income allows you to maintain a more steady lifestyle without concern of eventually running out.

  5. Firstly, I want to say that these are some great tips. Paying off debt is an incredible feeling, but some people spend their entire lives just trying to get back to “0” and never accumulate any substantial savings. I like that you point out that paying off debt is just step 1. A short meeting with an experienced financial planner and a little frugality can go a long way.

  6. A great food for thought for me, I am planning to retire during my mid 40’s and just spend the rest of my life with my wife and kids. By the way I’m only 25 and looking for articles like this that can help me with the choices and decisions I make. Your article has been very helpful and I will be making huge changes from now on. Thank you so much!

  7. a good systematic plan. i like plans like that. i have no credit card debt. i own my own home. i will sell my business in a year or so and pay off the od acct that i have maxed out over the last several years. i have been paying that down as well. i also have started a new internet biz that i hope will keep me involved and make enough to pay off expenses. i think i will be ok but i am still thinking i need to invest in something with low volatility in the coming years.

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