Every reasonably prudent man or woman who is in a job, vocation, profession or business is likely to envision his or her retirement sooner than later. But few people actually know the real art of how to Retire rich, although everyone dreams of such a situation.
Is it possible to retire rich?
Yes, it is quite possible to have a comfortable life after retirement and there is no need to compromise on your standard of living.
Retirement planning needs to start as early in life as possible and it requires knowledge of investment, habit of saving and careful monitoring of savings and investments. This will help the individual to maximize wealth and meet financial goals and needs.
Finance being an integral part of life, investment decisions should be taken only after a careful perusal of all the pros and cons. It is not uncommon to find people who are in the job and are concentrating on their careers, also talk about the stock market for investment avenues. It is a common knowledge that investments in the stock markets are a bit risky but may get you higher returns as compared to the conventional investment options. Please do read: Five Steps to Investing in Stock Market
Life after retirement
After retirement, most people would like to settle down at a place of their choice and then would not like to work for earning a living for themselves and their families. They would like to indulge in hobbies and pastimes for which they could never find time while they were working or were in a job. If they have been regularly investing throughout their working lives, they would like their investments to fetch them sufficient returns when they retire. They wouldn’t, generally, like to make any investments in the stock market after they retire. Most people wouldn’t be happy if they had to collect their pennies for paying the bills.
While the above may be the preferred scenario for most people, a large number who are in jobs may not be able to easily achieve the same. This is the projection made by many surveys and studies done by renowned institutions. The main reason is that the people are just not saving enough money and investing the same to achieve their dream retirement life. Simply put they do not have an investment plans.
Why is savings important?
When you are young, you tend to think that you can put off savings and investments for your retirement which would be decades away. But, if your retirement corpus is not big enough when you actually retire, you may end up spending the post retirement period struggling to make the two ends meet. Your meager finances and investments may not really come to your rescue then. You wouldn’t have perhaps heard anyone complaining that he had too much money or was rolling in finances when he retired. You would do well if you retire with enough finances to have a comfortable lifestyle after retirement. When you actually retire, you have a given lifestyle. Broadly speaking, you should be able to maintain the same level of everyday living post retirement as well. Towards this end, you must understand the importance of saving enough for a comfortable life after you retire from working life when a sufficient flow of finances may not be there.
How to Retire Rich
Now let us answer that How can you retire rich? There is no one formula to retire rich. It can at best be described as a gradual process. However, once you do make up your mind that you want to initiate the process of savings and investing while you are in an active job, things can indeed work out for you. Let us look at some simple steps to ensure that you actually retire rich and don’t have to worry too much about money or finances after retirement:
1. Cut out all avoidable or unnecessary spending
Most people don’t realize that there is actually some room to save for retirement and for investing from your existing household and miscellaneous budget every month. There might be certain expenses which you can totally eliminate. There would be some others which you cannot eliminate, but which you can reduce or postpone. Also refer to: How to Use Credit Card Sensibly
A careful look at your bank and credit card statements for the last few months may throw up some interesting items of expenditure. You may be pleasantly surprised to find some club memberships; monthly, quarterly or annual subscriptions and automatic-debit charges for services which you might not have used at all or which you can easily dispense with. You should also periodically review your cable TV, wireless service and Internet charges and other routine services to find out better rates or packages. Any ‘savings’ made in this manner must be added to the amount that you are already saving and investing every month for your peaceful retirement and retired life. Please read: How to Save Money on Car Insurance
2. Start savings and investing in stocks early in life
Believe me, the ground rule to retire rich is to start saving early in life in a disciplined and consistent manner on a regular basis. The process of saving and investing in stocks must begin the moment you start earning.
It may be very important to point out here that there is huge difference between investing in stocks and stock trading. While stock trading is risky and can be risky – especially if it is done by untrained person or done on impulse, investing in stocks is more rewarding over a period of time as there is hardly a role of impulse buying and selling. Of course, there is huge reward for the patience in investing in stocks and staying invested over a long period of time.
3. Understand use power of compounding
This is one of the most important principles of maximizing your wealth and how to retire rich. If you are not aware of the tremendous ‘power of compounding’ while you are investing, please spend some time understanding how it works. You will be surprised at the figures that you may get. Every minute spent will be an investment which will fetch you rich dividends in the times to come. The key is that you must give enough time to your savings to grow.
If you start saving and investing just $1,000 every year and earn a 7 percent annual return on your investments, then the amount which you will get at the age of 65 years would be $1,01,073 when you start at the age of 35 years. Keeping other things the same, if you had started at the age of 25 years, the amount would be substantially higher at $2,13,610. That is the power of compounding.
4. Let savings be the first charge on your earnings
If you want to retire rich, don’t give yourself the option to make savings the last charge on your earnings. Many people make the mistake of ‘deciding’ to save and invest ‘all the surplus amount’ that they would be left with at the end of a week or month. Very often, such surplus is negligible or is totally missing. Savings should be the first item of ‘outgo’ from your weekly or monthly earnings.
You may consider contributions to a retirement account at your workplace such as 401k or set up automatic debits from your bank account for regular investments in suitable schemes. This way, you deny yourself some liberty but end up making significant savings and investments. Recommended reading: How to Use Credit Cards to Your Advantage
5. Save at least 10 percent of your earnings every year
Ideally, you should be saving at least 15 percent of your savings every year for your retirement. Though the going average in the United States is close to 8.5 percent of the annual income, you must set aside at least 10 percent of your earnings, to begin with. This amount may gradually be increased (as your income rises) and brought to the level of 15 percent of earnings per year. Your savings must be invested wisely.
6. Don’t lose out on the Employer Match
If at your workplace, your employer matches contributions that you make to a retirement plan, make sure that you take full advantage by contributing the requisite amount. Otherwise, you unnecessarily lose out on some free money.
7. Save that raise and don’t go for incremental expenses
As you get a raise on your current salary, put the extra amount in your retirement account instead of the bank account. Don’t always expand your expenses on lifestyle items, better car or bigger home. This will hold you in good stead when you retire.
8. Consult an Investment Advisor or Financial Advisor
A good financial adviser is well informed, trained to understand your financial goals. Based on your income and different requirements of cash, he can work out a customized financial plan to maximize your wealth with minimum investment market risks.
All this you get for paying a small consulting fee or sometimes they don’t even charge that as they get the commission from the mutual fund brokerage firms.
9. Take some risks
Retiring rich is not only about saving money. Taking calculated risks to the extent that you can easily bear should be your policy. Risk taking capacity should not be looked at from the angle of finance alone. You should take your age and inherent risk tolerance also into account. While prudent investments will fetch you modest returns, any stock market related investments may fetch you higher or even spectacular returns.
We have covered the key elements which will help you retire rich. In addition to the above, you may look at the undernoted aspects of investments and investing as well:
- Diversifying your investments throughout your job period or career;
- Taking stock of the fees being charged on your mutual fund and 401k investments;
- If you are investing in the stock market, making sure that you do not pull out all your money during downturns in the economic cycle or when the stock markets are choppy;
- Considering Roth IRA for tax free returns on retirement;
- Investing in real estate, where there may be rental income after you retire;
- Opting for a side gig and putting the extra income towards your retirement savings;
- Cutting costs by downsizing on your large home well before you retire;
- Relocating to a lower cost-of-living location and
- Getting professional help for your investment needs.
The strategies and plans mentioned above broadly cover all the aspects concerned with your retiring rich and leading a peaceful and contended life. We earnestly hope that you implement the strategies mentioned above as per your specific needs and do retire very rich!
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