Recently I came upon an interview on KTVI – Fox2News out of St. Louis that caught my eye. It was on “how you can retire a millionaire” even in this economy. To many this is a far off reality, but for many who are diligent, start early, avoid debt, and methodically save then it is a reality. Here a few points that I liked from the article and other suggestions I’d add as well.
Key points from the interview:
- Starting early. The sooner you can start saving for retirement (401(k), Roth IRA, Regular Roth, 403(b), etc) then the sooner you can have compounding interest starting to work for you.
- Stay focused. For many people distractions of bills, debt, life events, children, or other wants get in the way. Try and shoot for saving a minimum saving percentage of 10% in your 30’s.
- Finish strong. When you are 55 – 65 don’t give up on your dream of saving a million dollars. Push forward and finish the race you started 30+ years ago by continue to save 10% of your salary minimum.
- Protect your assets. Once you’ve got to retirement with a $1 million portfolio, then do everything you can to protect your assets by hiring a lawyer to write a trust.
Three Thrifty Guys tips for how you can retire a millionaire:
- Start extra early. Age 22-30 is the ideal time frame to save and has the greatest compounding strength. In college my economics professor, George Frangedakis, quizzed our class and asked, “Who would have more money at age 65? Person A who only saved from age 22-30 $500/month at 10% annual return compound interest monthly or Person B who saved $500 from age 30 -65 at the same compound interest rate. Most of the class picked Person B, because they had 35 years of savings. However, to our surprise it was Person A. Here is the difference how much of a difference compound interest makes. Person A would have a Final Savings Balance: $2,385,649.04 and Person B would have a Final Savings Balance: $1,898,351.66. That is a 487,297.38 difference and Person B would have contributed $210,000 as apposed to $48,000 for Person A. Check out the numbers using bankrate.com’s savings calcutor.
- Diversify your assets – pick a broad asset allocation of large cap index, mid/small cap index, international index, and bond index. I highly recommend Vanguard’s target retirement funds which are diversified in the above asset classes, but become more conservative the closer you get to retirement. Also their fees are extremely reasonable too.
- Dollar cost average into quality stocks and bonds – by dollar cost averaging into index stocks and bonds you’ll avoid getting emotional and buys more shares on the dips and typical more shares at a lower average cost too. Here is a great calculator that shows you if dollar cost averaging works over periods of time you specify –“Does dollar cost averaging work?”
How else do you think a person can retire a millionaire? What advice do you have?