How YOU Can Make Up For Financial Dark Years

Dear Rich Lifer,

This bear market will come to an end. That’s the good news. 

The bad… not all retirees will be there to ride out the recovery.  

During the 2008 market crash, about 5 percent of Americans 55 and older dumped all their stock from their 401(k)s and then missed the 2009 rebound.

While the current market dive is bad, losing everything you’ve worked hard to grow with no hope for recovery would be even worse. 

That’s why I want to save you the trouble of making some regrettable choices. 

For instance, if you hear friends talk about “going to cash” in a crash. Plug your ears.  

Thinking you’ll jump back in when the market turns up is like counting on the PowerBall to fund your retirement. 

Six of the 10 best daily gains in the S&P 500 between January 2000 and December 2019 happened within two weeks of the worst 10 days. 

If you missed all those 10 best days, your average annualized total return for those two decades would have been 2.44 percent compared to 6.06 percent if you’d stayed the course. 

My point being, that for most Americans staying invested right now will be the best course of action. 

But what if you’re approaching retirement with nothing saved? 

According to the U.S. Government Accountability Office, almost fifty percent of Americans over the age of 55 don’t have any retirement savings. 

If you fall in that camp, don’t panic or dwell on the past. It’s not too late to start funding your retirement, heck it’s probably one of the best times to start.

Here’s what you do…

Tighten your belt

The first step to saving is figuring out where your money goes each month. 

Mobile phone apps like Mint, Wela and Personal Capital, let you create a budget and track your spending so you can cut expenses and use that money for savings.

These apps also allow you to set reminders to pay bills and avoid late penalties. You’ll never miss a payment on your credit card again and your overspending should stop. 

Next, you’ll have to…

Get realistic about your retirement goals 

This might sound like I’m saying aim lower. I’m not. 

If you want to guarantee a rich retirement, you might have to come to terms with the fact that you’ll need to work a bit longer. 

Working longer will give you a few more years to boost your savings and will postpone taking withdrawals from your retirement funds. 

Another benefit is you’ll delay Social Security benefits and build up those additional earnings credits as well. 

For example, the difference between collecting at age 66 vs. age 68 could mean a 16% bigger monthly check for the rest of your life. 

There’s also evidence that working longer could be good for your health. Some studies show a strong correlation between working and health, and if you cut out work from your daily routine too early, you could succumb to illness a lot faster. 

Make the most of IRS rules

The IRS says that in 2020 employees can put away up to $19,500 in 401(k) plans. If you’re 50, or older, you can also make a catch-up contribution of $6,500. 

That’s a total of $26,000.

Divide that up on a monthly basis for 10 years and you’d have $392,717 assuming a 6% average annual before-tax return. Stick with it another three years, and you’re looking at $552,866.

Plus your employer might match some of your contributions, fattening up your account balance even more!

But what if you don’t have a 401(k) or you want to sock away more money?

You can put $6,000 into an IRA. And if you’re older than 50, you can add an extra $1,000 in catch-up contributions. Moreover, contributions could be tax deductible.

$7,000 each year with a 6% annual return will give you another $105,731 in 10 years … $148,848 in 13.

You can see that with a 401(k) and IRA alone you could amass a whopping $701,714 in 13 years!

And after you fund those accounts, you can still put money into a savings or brokerage account each month.

Where could this money come from? 

One idea is to…

Downsize before retiring

Many people wait until they retire before downsizing to a smaller, less expensive home.

If you plan to stay in the area after retiring or can work from home, why wait?

Any cash you have left over after buying a new house could go into your retirement savings or pay off credit cards. And assuming monthly household expenses go down, you’ll have even more money to put away.

It’s easy to look over your shoulder and get stuck by saying, “I wish I would have started earlier.” But rather than worrying about the past, start taking action right now. 

Don’t wait any longer, get started today.

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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