Everybody dreams of a comfortable retirement…
One where you have the freedom to do and go where you want. And live on your own terms without worrying about your financial future.
But most people believe that dream will never become a reality.
A recent Gallup poll shows that just 43% of working Americans expect to live comfortably in retirement.
So if you’re part of the 57% that isn’t as sure… you’re certainly not alone.
But luckily, you’ve come to the right place.
Here at Intelligent Income Daily, our goal is to help you build up enough reliable income to be able to enjoy your retirement. So you can have the freedom to do what you want without worrying about pinching pennies.
Today, I’ll show you what it takes to get on track for your golden years… and why today isn’t too late to start protecting your retirement.
Exactly How Much Do You Need to Retire?
The Survey of Consumer Finances shows that the median retirement savings for people aged 65-74 is $164,000.
That may sound like a lot of money. But retirement experts at Fidelity Investments say it’s not nearly enough.
They say you should have 8-10 times your annual salary saved up by retirement. For middle class folks making $50,000 a year, that means getting to $400,000-$500,000 in savings.
That’s nearly three times what most people actually have.
Think of it this way… A popular retirement strategy is called “the 4% withdrawal rule.” While not a hard and fast rule, it’s a common way to calculate how much you’ll need if you withdraw about 4% of your savings for 30 years of retirement.
If you were to follow the 4% withdrawal rule with only $164,000 in the bank, you could only take out $6,500 a year.
I don’t know about you… But to me, that doesn’t sound like a comfortable retirement.
A recent study by the Vanguard investment management group shows that only workers in the top 5% of incomes have enough saved to cover their retirement needs.
But even this study is overly optimistic…
It assumes that the bottom 25% will get most of their retirement income from Social Security. And if you think you can rely on Social Security, think again… The trust fund for those payments is expected to be depleted by 2034. After that, benefits for everyone would have to be reduced by 20-25%.
The sad truth is that many people may have to keep working past retirement age to make ends meet.
But here’s how you can beat the odds: Start saving more and invest as soon as you can.
You see, the top 5% of earners are planning on getting more than 70% of their retirement income from savings and investments.
So if you’re reading this newsletter and thinking about investing, you’re already starting to take your future financial freedom into your own hands.
Steps to Take Today to Secure Your Comfortable Retirement
The St. Louis Fed says that Americans are saving just 3.9% of their income.
That’s well below the 10%-15% savings rate recommended to prepare for retirement.
Saving money is tough, especially when inflation is making everything more expensive. But every bit counts.
And you should start as soon as you can. Because aside from saving money, the most important ingredient in growing your retirement nest egg is time. The earlier you start saving, the more time your investments will have to compound, building your financial security.
But even if you’re nearing retirement, it’s still not too late.
Let’s say you put away $10,000 when you’re 60 years old. If it grows by 7% per year, then after 5 years you’ll have about $14,000 when you’re ready to retire at 65.
And if you can start earlier, that’s even better.
If you had invested that same $10,000 when you were 55, then 10 years of 7% compounding would turn it into $19,700 by the time you hit 65.
Those extra five years increased your nest egg by 40%.
Now imagine if you had started at age 50…
That $10,000 would be worth $27,600 by the time you retire. Those extra 10 years nearly doubled the amount of money you would have at retirement.
That’s the magic of compounding – money grows exponentially faster over time. So the earlier you start, the more your money gets to grow.
If you’re not sure where to get started, see if your employer will match your retirement contributions. If the answer is yes… take advantage. That’s free money for doing something you should be doing anyways.
After that, try to maximize your contributions to a traditional or Roth IRA. These individual retirement accounts can help reduce the taxes you pay while your money grows.
Now, there is a limit on how much money you can put in each year, so it is important to consistently contribute as much as you can.
But what happens after you get the money into a retirement account?
I like to put my money into companies that pay a growing dividend. These are profitable, well-run businesses that have proven successful in both good times and bad. The ever-increasing income stream that they provide helps me sleep well at night and not worry if their stock prices temporarily fall during a bear market.
One of my favorite dividend payers is Realty Income (O). It sends me a dividend check every month. And it’s been increasing its dividend every year since it went public in 1994. That’s three decades – and three recessions – with nonstop dividend growth.
Realty Income’s stock is down more than 20% this year. But I couldn’t care less. Its dividends are just as reliable as ever. Realty Income yields 6.1% and trades at a 28% discount to its historical average valuation. That means it’s a great time to be adding more shares of Realty Income to your portfolio.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
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Source: Wide Moat Research