The CFG Landscape Crew Wants to be Millionaires
You know, for many this is the magic number they think they need saved up to retire comfortably. I hear this all the time when meeting with folks approaching retirement. If they could just reach this exquisite dollar amount, they’ll throw in the towel and leave the office behind. Lots of folks have a number they’re aspiring to, but I tend to hear the $1 million dollar figure a lot.
Unfortunately, most Americans are behind on this lofty goal. In fact, according to Federal Reserve Survey of Consumer Finances, a mere 10% of Americans have saved a million or more for retirement. Just how far off are they? Quite a bit. Get this - the average savings for those ages 65-74 is $426,000 and it’s just $357,000 for those 75 and older¹.
Hmmmm . . . Houston we may have a problem.
Now, don’t panic just yet if you haven’t reached this milestone yet. Obviously, the larger your account balance, the more comfortable your retirement will be so you should strive to save and invest as much as you can. And believe it or not, converting $100,000 into $1 million is a challenge but it is achievable. So, this week let’s take a look at a few strategies you can take advantage of to get you on the path to a successful retirement, whatever your savings goal.
One of the cornerstones of successful investing is compound interest, where you earn interest not only on your initial investment but also on the accrued interest over time. This concept is vital in multiplying your savings, particularly if you begin early and allow sufficient time for compounding. The concept is so powerful that Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”
Take my three girls for example – thanks to some good hard work (and a lot of parental supervision), they got their retirement savings off on the right foot. Back before they went to college, Jill and I made them the official “Cutter Financial Group Landscaping Crew”. Once they hit age 13, we put all 3 of them to work keeping our lawn and gardens in tip-top shape. Were they willing participants in this endeavor? Well, once they gave us an earful about child labor laws and bickered the entire time about who had to cut the grass vs who had to sweep the sidewalk, they actually did a pretty good job.
And yes, I paid them well and then placed it into a Roth IRA for each of them. Over the years it has grown quite nicely thanks to the benefit of compound interest and they’re each getting close to the $30k mark – not bad for our now college-aged kids! I had the pleasure of sitting down with the girls during Thanksgiving weekend and showing them their Roth statements and how easily compound interest adds up. They were astonished! (And no, they still didn’t thank us for making them our lawn crew!).
I explained to them that compound interest is the time value of money. This means that their money is worth more today than it will be in the future because you can invest it and earn interest over time. This is why it’s important to start saving for retirement as early as possible, even if you can only afford to save a small amount each month. By giving your money more time to compound, you’ll be able to build a larger nest egg for your retirement years. How much do you need to save? Well, there is no magic formula. Some experts recommend saving 10-15% of your annual income, but this will vary by individual as well as your ultimate savings goal and time to retirement.
For example, a 10% average annual rate of return could transform $100,000 into $1 million in approximately 25 years, while an 8% return might require around 30 years. Want to save more, faster? Consider investing an additional $400 per month. With a 10% average annual return, this strategy could increase your savings from $100,000 to $1 million in just over 20 years. Of course, the actual timeline will depend on the specific returns achieved, and it’s unlikely that anyone can expect to receive a consistent rate of return every single year. But it helps us understand the power interest crediting over time.
I explained that this money was not theirs to access now. It is a long-term investment for retirement, which means holding it for decades. When you hold investments like this for the long-haul, you have the ability to ride out market fluctuations and benefit from the compounding effect. If the market tanks and your investment drops, it’s OK when you’re younger because you don’t need to touch it. You can let it be and allow it the opportunity to increase when the market goes up again.
Once you get closer to retirement and have less than a decade or so to invest, this is when you need a comprehensive retirement system. One that considers all of your retirement expenses, risks, sources of income, legacy plans and more. As you get closer to retirement, you have less time to potentially recover from losses so your retirement system should now include a downside risk mitigation program, which identifies and aims to mitigate potential risks, like market volatility.
Still want to be a millionaire? It might just be possible. Whatever your goal, the time to start saving is now to give yourself the best chance for retirement success.
And as always - be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA.
Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at jeff@cutterfinancialgroup.com. This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy. 1. https://tinyurl.com/549ayw7e
