How to Retire a Millionaire
Mellody Hobson gives you tips on banking big bucks.
July 8, 2008 — -- With record-high gas and food prices, many Americans are struggling just to make ends meet, and a lot of people are looking for ways to get more money as they eye retirement. Find out what you can do at any age to ensure your finances during retirement.
At 25 years old, if you can save $75 a week, or $300 a month, in a mutual fund with an average return of about 8 percent, you would have $1 million by the time you turn 65.
The first place to start is with your employer's retirement plan, such as a 401(k). While I always advise maxing out your contributions, this is not always possible, so at a minimum, be sure to contribute enough to qualify for your employer match. According to the Profit Sharing/401k Council of America, about 78 percent of employers offer some type of match.
Not taking advantage of this is the same as passing up free money. If you don't have an employer retirement plan, definitely invest in a Roth IRA if you meet the income requirements, or a traditional IRA. Twenty-five is also the age to start an emergency savings fund (with three to six months of living expenses) as well as to pay down any outstanding debt and be sure to avoid building up new debt.
If you haven't saved anything yet, you will need to sock away $671 per month (also in an investment earning 8 percent annually) to reach $1 million by 65.
Again, first and foremost, take advantage of your 401(k) plan. If you can, contribute the maximum, which is $15,500 in 2008. You also may want to consider other savings vehicles that offer tax advantages, such as your home state 529 plan if you have kids.
That said, keep in mind, your retirement savings must take priority over saving for your kids' future education expenses. There are multiple options for your kids to finance their higher education, and they will have their whole careers ahead of them to pay off any loans. But, as I have said many times, there are no scholarships for retirement.
Times are tough right now, so you just need to do the best you can. Be incredibly diligent about how you spend every dollar, and save as much as you can, even if it is a small amount.
When things get better — and they will — you can reassess your savings goals and put away more. The key is to get started right now, no matter how old you are.
Related Stories
ABC News Live