“I am going to save a million dollars” might sound like the braggadocios musings of a high schooler, but anyone who is thinking about retirement savings, it’s actually just a starting point.
In fact, personal finance Suze Orman said on the “Afford Anything” podcast she advises at least $5 or $6 million for a comfortable retirement that provides enough for contingencies.
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While that might sound unattainable, Orman has plenty of advice for how to get there. Her overall theme is be consistent and be patient if you want to hit those big goals.
Suze Orman says it’s possible to save $1 million for retirement by having a plan and sticking to it.
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Implement a savings strategy
Suze recently talked about a CNBC that found less than half of workers are “cautiously optimistic” about having a secure retirement. “That doesn’t surprise me, but it sure does make me a combination of sad, and concerned,” she said.
However, she also refuses to let anyone “stay stuck” there.
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Here are some of Orman’s ideas that can help you gain some retirement-saving momentum:
Track spending on needs vs. wants for three months
Every time you are about to spend money, ask yourself: Is it for a need or a want?
If you do buy a “want,” says Orman, keep a weekly running tab on what you spend. Every dollar you spend on a want is money that you could have saved for retirement.
Do this for three months, Orman says, and you will build a new habit: reducing money you spend on wants. “Every dollar not spent on wants is a dollar that can go into retirement savings,” she says.
Spend the least amount possible on needs
“When you need to replace something, the goal should be to spend the least amount possible without sacrificing quality or safety,” Orman writes. If you need a new car, buy the least expensive option. “A reliable used car is likely a far better financial move than buying a new one.”
The same concept applies to groceries, clothes, etc. If you spend the least amount possible you will have more money each month to put toward retirement savings.
Push yourself to save more
This might be tough for some people, but you are currently saving 6% of your salary in a retirement account, change it to 7%, says Orman. Then, in six months, increase it to 8%.
Same concept goes with paying down a credit card balance. “Add another $50 a month to the payment. The goal here is to make modest shifts that move you in the right direction,” Orman says.
These are all steps that help you create positive new habits and “as you make progress you will feel better about your prospects, and your ability to propel yourself toward a more secure future.”
Minimize taxes and fees and consider investing for growth potential
Keep your money in a place where there are no fees to get to it, says Orman. That includes accessing money at the ATM. Banks will look for ways to charge you more for “services” than the interest rates they are paying you.
“The only way to be investing in the stock market is through dollar-cost averaging, where every month, or every three months, or every six months … if there is something that you own and it goes down, you buy a little more. If it continues to go down, you buy a little more,” Orman says.
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Figure out the fixed amount you want to invest, and then how often. “Once you’re settled on these two parameters, you can set up automatic investing — a payroll deduction or scheduled bank transfer — through your favorite investing app.”
Orman stressed the importance of practicing dollar-cost averaging on a mix of exchange-traded funds (EFTs) and mutual funds, assets that fall between in the sweet spot between returns and risk.
Automate your plan so you can take advantage of continuous contributing and potential compounding over time
Automate payments
Once you’ve automated your savings to take advantage of dollar-cost averaging, next automate credit card payments so you don’t ever pay late fees — money that, you guessed it, you could be saving for retirement.
Automate emergency savings
She also advises automating emergency savings so you will always be able to deal with “what ifs.” Create a savings account and have your bank put some money in every week or every month into that special account.
Automate retirement savings
“If you have a workplace retirement plan, you already are doing some automatic retirement savings: each paycheck, some of your salary is sent into your retirement savings account. If you don’t have a workplace plan, or you want to save some more on your own, a Roth IRA is a great retirement savings strategy. And with a Roth IRA, you can set up the same automated contribution system,” Orman says.
Taking these steps will get you to a million dollars or more, over time, of course.
Orman isn’t alone in her “one step at a time” advice.
“There’s a well-blazed trail to the million-dollar mark and beyond. Normal people do it every day,” according to Fidelity. “It doesn’t take entrepreneurial genius, investment wizardry, or wealthy relatives.”
Like with any big plan, it just takes commitment to your goals. “Be patient,” writes Ryan Viktorin, CFP, vice president and financial consultant at Fidelity’s Investor Center in Framingham, Massachusetts. “It can happen over time with a consistent, repeatable process.””The people I’ve worked with who reached their goals through saving and investing followed a straightforward path. They made a plan, created a saving strategy, and automated their saving. After that it’s a matter of executing the plan and continuing to refine it over the years.”
By Orman’s accounting, you start saving $100 a month at age 25, you’ll have a million dollars by age 65 or there abouts. If you want until 35 to start saving that money, you’ll only have $300,000. That is some expensive procrastination.
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