The other day, one of my 40-something colleagues asked me what he can do to better prepare for retirement. He said he contributes 5 percent of his pay to his 401(k). "Contribute 10 percent," I suggested. He replied that his budget is tight, and pointed out that with the company match, he's really investing 8 percent of his pay. "Contribute at least 2 percent more," I recommended.
Plenty of Americans in all age groups are in the same retirement planning predicament. They're not sure how to adequately prepare. All they know is that they need to save a truckload of money to get them through 20- or 30-plus years of retirement. A million bucks seems like a worthy goal.
There's hope for everyone who sets this intention, regardless of how old they are. In fact, the late Bill Fisher didn't seriously start amassing wealth until he was 72, as revealed in the self-published book, "The Boomer's Guide to Recovering Your Lost Retirement: The Bill Fisher Story," by Michael R. Burns. Burns wrote about his father-in-law's methods of accumulating wealth.
Long story short, at 72 Fisher invested $50,000 in life insurance proceeds, as well as his pension and Social Security checks, and continued to work until age 84, when he finally retired. As an octogenarian, he was worth a million dollars.
5 steps to success
I asked Burns for the best advice to boomers who may have lost money in the recent financial crisis. In his words:
- First, they have to balance their budget. They have to get more income coming in than they are spending each month.
- Second, they must continue to work. We are all living longer. … If you are healthy, you should be able to work at least until 70. You can work from your home being a rep for a company or sell stuff on EBay.
- You should wait to take out your Social Security until 70. In most cases, you can double your money.
- You should contribute to an IRA and 401(k). In these tax-deferred retirement accounts, you can build wealth quickly.
- With your leftover money, you should invest in high-dividend stocks, dividend reinvestment programs, or DRIPs, municipal bonds and residential real estate.
"Baby boomers should create multiple sources of income," Burns says. "They can live off their salary and invest everything else. Bill Fisher did this and he lived a very active life, traveling overseas, going to the country club and still built a net worth of $1 million when he was in his 80s."
Get a head start
While Fisher's accomplishments are inspiring, it's better to start saving at a younger age and make it a goal to amass a million bucks or more long before you turn 70.
Of course, unlike Fisher, whose house was paid off and whose children no longer depended on him, younger folks face more financial obstacles. They need to negotiate the purchase of a home and car, pay off student loan debt, save for their own children's college education, put money in an emergency fund and invest for retirement -- all while juggling monthly bills for current living expenses.
But the younger you are when you start saving for retirement, the better your chances of amassing a million bucks or more because of the power of compounding. Start by deferring 10 percent of your pay to your company retirement plan. You won't miss it if it goes directly into investments instead of your checking account.
And if your company doesn't offer a retirement plan, open an individual retirement account and set up automatic transfers from your savings or checking account. That's the easiest way to accumulate wealth -- maybe a million bucks or more.
The bottom line: While it's never too late to start saving for retirement, it's always better to start early.
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Barbara Whelehan is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It is available at Amazon, Barnes & Noble, iBookstore and other e-book retailers.