According to a shocking analysis by Bankrate, almost 65 per cent of the American population saves little or nothing for their retirement.
Making enough room in your budget for regular retirement contributions, when you have fixed monthly expenses, mortgage and student loan to pay off, can seem like a difficult task. But if you want to become a millionaire by the age of retirement, here’s a fool-proof strategy to get you there – and it only requires an investment of $5 a day!
A study found that 33% of baby boomers have less than $25,000 in their retirement funds
Becoming a Millionaire with Compound Interest
Everyone wants to become a millionaire but only 45 per cent of the Americans are actually working towards this goal. The rest are too busy paying down their mortgage and debts to think about their life after retirement. Michael Taylor, a former financial analyst at Goldman Sachs, says that the real reason why most people aren’t saving enough for their future is because they don’t fully realize the power of compound interest.
Taylor has now taken it upon himself to help youngsters understand the importance of saving and investing from an early age. In his book, The Financial Rules for New College Graduates, he writes that most schools don’t educate children about compound interest in their math class, but this magical concept of multiplying your wealth exponentially is the only sure-shot way of becoming a millionaire by the time you retire.
Taylor also has his own YouTube series where he fully examines the concept of compound interest and says that becoming a millionaire is as simple as making a couple of smart investments in your twenties.
But most people don’t get around to saving money for their retirement until they are in their late thirties. A new study by TD Ameritrade shows that a majority of the millennials have put off saving plans until they reach mid-thirties, whereas half of the population has no interest in investing in the stock market.
The Payout
Taylor finds these statistics shocking. People who develop saving and investing habits later on in their lives are seriously missing out on the magic of compound interest.
For example, if someone starts investing at the age of 55, and puts away $5,500 into a retirement fund with 10 per cent return, the amount will have grown to $14,265 in 10 years.
Sounds pretty good, right? But if a 20-year-old were to invest the same amount in a retirement fund with the same annual return, the amount would skyrocket to $600,000 in 50 years! Of course the purchasing power of your money would be lower in 50 years if you factor in the inflation.
No matter what age you are now, if you put away just $500 towards your savings account every month, you’ll have a million dollars in 33 years. Double your monthly contributions and you’ll only need 25 years to earn the seven figures. Which means that if you start saving in your 20’s you’ll be on track to become a millionaire much earlier than when you retire.
An average millennial pays $400 every month in loan payments which reduces their chances of saving for retirement
The $5 Plan
The amount of debt millennials have amassed from student and credit card loans is astounding. According to TD Ameritrade’s research, the average millennial is $15,000 in debt, an amount that can take years to pay off.
Most fresh graduates pay $400 or more every month towards their college loans, besides rent, utilities and other living expenses. This greatly reduces their chances of saving up for retirement. But the more you wait, the more you’ll have to contribute towards the retirement fund in order to get the same payout.
Taylor says that most Americans believe that getting wealthy is a matter of good luck and keen business acumen, when in reality, it is as simple as saving early and frequently. In order to ensure that the younger generation has plenty of money in their bank account by the time of retirement, we need to change their perception about wealth.
The truth is that becoming a millionaire isn’t difficult or impossible. In fact, anyone can become one simply by putting away $5 every day into a savings account and not worry about retirement for the next 50 years. The $5 a day in an account with 10 per cent return will multiply into $30,000 in ten years and $2.3 million in 50 years. Yes, it probably sounds too good to be true, but this is the magic of compound interest.
