With rampant inflation not calming down anytime soon and the level of revenge spending going on at levels never before seen since 1999 during the dotcom bubble when investors poured billions into cheap penny tech stocks before the burst, Americans are now predicting retirement to become even more expensive than ever before, with an estimated $1.25M to be allocated in order to live financially free and without concern for as many years as you wish to sit back and take it down a notch.
With over 90% of Americans self-report not being financially illiterate with the median average household net worth at ~$748k with less than $141k in the average retirement savings account, $1M+ for most may be equivalent to winning the jackpot and an obscene amount to divest for 40,50 years from now. One of the most financially dangerous mindsets to have is assuming retirement is so far away you donât even bother with it now.Â
Spoiler Alert: Before you know it, it will be here any day so buckle up folks.
Donât even get me started on the inflated billion-dollar jackpot that is sidelining millions of gullible Americansâ diligent pandemic financial progress. Becoming reliant on any system, government or even partner is never a wise move, especially since you never know what the future holds.
When it comes to winning a lucky lottery ticket, believe it or not, you have a higher chance of earning that amount yourself, not overnight, but in the long run than scoring all correct numbers. Being self-reliant is the most freeing feeling in the world. Never lose sight of it and reach for it further.
With roughly the same percentage of Americans who are behind in their retirement savings currently holding onto some sort of debt, toxic or not, this estimate has ticked up by more than 20% for a retirement baseline than what was estimated just a year ago. According to Northwestern Mutual, only 4 out of 10 people believe they donât think theyâll be set to retire and must face the reality of having to work longer and delay retirement instead.
Here are the most common steps future retirees believe they will have to make to not outlive their savings:
-Increase savings
-Compose a financial plan
-Purchase investments
-Discuss options with family
-South advice from an advisor
-Purchased insurance
-Have not taken any steps
According to this study, 38% of individuals have not taken any steps to address this dillema.
Getting to that $1.25M goal or winning the lottery doesnât happen overnight, which are never recommended ways to become happy or feel truly rich after all. If youâre short on your goal by a yard or a mile, there are reasonable steps to take today without forgoing your current comfortable circumstances.
Work Backwards
Working backwards from your goal to live your financially free life earlier than later starts with understanding how long it will take starting today to grow your passive cash flow streams and with estimating how much you can realistically cut back on.
A good rule to follow is if it doesnât hurt, youâre probably not saving enough!
Cutting back on your expenses is much easier than becoming a better investor and trying to time, let alone beat the market which is like betting youâll win the $1 billion lottery during the next draw. Time in the markets matters more than timing the markets folks. Donât forget about that, especially when building your dream retirement life.
When evaluating your expenses and guestimating how much you can and or should cut back on while not ruining the quality of your current life, itâs important to consider what new expenses have trickled onto your balance sheet over the past few months or years.
Have you been subscribing to more streaming services since 2020 or going for your daily coffee run at Starbucks as a full-time remote worker yearning for an in-person connection at least once a day before being trapped in your home office all day?
If you were fortunate to have extra time on your hands during the pandemic and found new hobbies or side gigs for supplemental income, make sure not to blindside yourself into assuming the more you earn, the more you can cover or spend through lifestyle inflation, especially when it comes to less tax advantageous forms of earning from active income.
Since investment and passive income are the most cost-beneficial and tax-advantageous sources of income for ultimate independence, financial freedom, and security in the long run due to no burden of government taxes, the number one liability on Americans, creating and producing more tangible streams of income is more opportunistic and pays dividends in the long run than feeling replaced at any moment elsewhere.
From owning rental properties and charging your expenses to your business for a tax write-off to contributing the max to your post-tax Roth and 401(k) to lower your marginal tax rate, there are plentiful ways to put extra money back into your pocket and not into Uncle Samâs, without sacrificing your lifestyle.
After all, if youâre enjoying your life while living below your means at the same time without feeling too much of the punch, youâre most likely better prepared for treatment or any macro headwind that may be presented in the future.
As investors, consumers, individuals, and students of life, we have more control than we think and it starts with what we can appreciate today and save a little extra of for tomorrow.
Slow & Steady Wins the Race
Although tracking expenses, setting up a detailed budget, not spending more than ~30% of your checking account balance or income on housing, maxing out your tax-advantageous investment accounts from your 401k and Roth IRA, and focusing on passive over active income can sound tedious and not a rich life today, looking ahead, youâre actually making the most out of your money in the long-run.
The tortoise always beats the hare in terms of effort and performance down the road.
Donât beat yourself up for being consistent and a bit slower than the rest to reap the unlimited gains later on. After all, thatâs the whole point of learning.Â
You couldâve worked at the local grocery store since you were 10 yrs old and have earned a pretty solid minimum hourly wage for the last 12 years doing so or taken your time compounding through DCA (dollar-cost-averaging) and investing in yourself to build the irreplacable skillset, expertise, life, and network to ideally make your life easier in the long run. Education is an economic premium that cannot be replaced.Â
Never underestimate your best investment, your potential.
Without any general knowledge or understanding of history, the world, and areas you may not even have any interest in, life will be much more difficult. As a result, the more work you put behind the scenes today, the greater it can work for you later on.
Of course, spending is easier than saving, especially when it comes to considering future rewards, however, in the long run, your older self will appreciate it much more.
Donât get into the trap of tapping your retirement accounts and paying a penalty on the early withdrawals just to fund your first home purchase or luxury show-off car. Itâs never worth it. Stick to a plan for the long run. It will reap the gains, especially the more you allocate for yourself later on. The good thing about the recommended baseline of $1m for treatment, whether ambitious or more doable than initially presumed is that you know how to get there.
Itâs all in your control and itâs only a matter of time before you know how early you want to get started or not. Nothingâs stopping you besides yourself.Â
Adopt prudent healthy savings habits, get lucky by taking calculated risks, adopt a stronger personality, character to win friends and influence people, and know your strengths and weaknesses to discover what you really want out of life versus can cut back on to save yourself later on in the blissful state of retirement not having to panic if youâll need to re-retire a couple times, by choice or by force.