BOSTON (CBS) – Retirement folklore seems to have everyone believing you need $1 million to be able to retire. However, millionaires make up only 5% of the population.
If you are looking for an income of $40,000 in retirement and don’t want to dip into your principal then indeed you’ll need the million. But most people do retire with a lot less than $1 million.
Any savings makes life in retirement better. Often the savings do not provide enough income so retirees dig into principal to supplement their Social Security benefits and pension. And often they must change their lifestyle because of a lower income stream.
According to a survey about retirement readiness done by Fidelity Investments, over half (57%) the retirees they interviewed wished they had done more to prepare for retirement, and earlier.
The best bet to having $1 million when you retire is to start saving in your 20s! A 401(k) contribution of $2,000 a year, about $160 a month or $40 a week, started at age 20 and continued for 47 years with an average 8% return over those 47 years (which is realistic), you could be a millionaire at retirement.
You will have contributed $94,000 to the account over the years. And of all of the decades Twenty-Somethings have the best shot at becoming millionaires!
Most twenty-year-old’s do not often have retirement planning on their radar screen. These are the accumulation years. They get that first job and they want stuff. Nice stuff! The flat screen TV, iPhone, iPad kind of stuff.
The average twenty-something is digging themselves into a hole they may not get out of for many years. Add all of this accumulation debt to school loans which averaged over $25,000 last year and many are not eligible for a car loan or a mortgage because they are carrying too much current debt.
Staying out of debt is the key to achieving financial success in your 20s. Starting to save for retirement is also a big part of that success. The key years for retirement savings are between the ages of 20 and 35.
Starting to save in your 20s gives the money 40 years or more to grow. Start with your employer plan at work. If your employer offers a match in the retirement plan be sure you are contributing at least that amount so you take full advantage of those extra dollars offered to you. No employer plan at work, use an IRA to save for retirement.
A great website for help keeping track of your finances and budget is www.mint.com.