Who Wants to Be a Millionaire?

[Michelle Matson]

Who doesn’t want to be a millionaire is probably a better question. However, most people and more specifically most women, probably think that millionaire status is unattainable and just something to daydream about. Many investors see the possibility of becoming a millionaire as something that happens to others and that those individuals probably just got lucky.

While most people have dreams of how they want to live their life in retirement (travel, hobbies, lifestyle), the U.S. Department of Labor reports that less than half of Americans have calculated how much they need to save to get there.  With the average American spending about 20 years in retirement, this is a huge oversight in the area of preparing for retirement and having the lifestyle you really want to sustain.

I know the term millionaire carries a lot of interpretations for most people who immediately conjure images of Oprah or Donald Trump. However, becoming a millionaire is actually attainable for many average investors with regular jobs who are willing to create the right habits and are determined to achieve this momentous goal.

Most women realize that they have reason to be concerned about how they will maintain their lifestyle in retirement.  According to a 2009 EBRI study, only 12 percent of women are confident they will have enough money to live “comfortably” throughout their retirement years. With 58 percent of female baby boomers having less than $10,000 in retirement, we have every reason to be concerned and it’s no wonder that one million dollars seems like a fairy tale.

Why are many women in this startlingly bleak position when it comes to retirement? Most likely, it’s because life happens and priorities change. I know what it’s like to work full-time while taking on the numerous responsibilities of a wife and mother. Stuff happens and there is always something that seems more immediately important financially than saving for “someday when…” What we need to focus on is communicating how much more difficult it gets to “catch up later.”

Catching up isn’t just a matter of starting to save (eventually), because most of us are not going to save our way to becoming a millionaire. We have to build the habit of saving, but the real juice is going to come from investing those savings in a super solid investment strategy that will get the results we are seeking. When it comes to investing, those early years count even if our contributions are minimal.

Many women might be thinking, “I’ll never be able to do that,” when you talk about saving and investing her way to being a millionaire, but the truth is that many women can accomplish this and it doesn’t even have to hurt all that much!

To put it in perspective, if your client contributes ten percent of her income to a 401k, it feels more like seven percent because its tax deferred. Most of us spend seven percent of our income on things we really could live without and I can’t think of anything that will give us more long-term benefit and satisfaction than investing in our future financial security.

As an advisor, you know the benefits of compounding and of course, the earlier someone starts saving and investing, the better; but even if your clients don’t get started in their twenties, they have lots of hope for building a sizeable portfolio through good habits and a prudent investment strategy.

For example, if you had a client who started contributing $200 per month or $2,400 per year(which is ten percent of $24,000 per year) at age 30 until she turns 65 years-old, she will have invested a total of $84,000 over the time period. That in and of itself is great and a huge accomplishment. Add to that a solid investment strategy at nine percent average rate of return and she could end up with over $592,000! While it’s not quite a million dollars, it is a far cry from the less than $10,000 most baby-boomer women have today. That is what I call success!

What I find so exciting about this conversation is that even an employee who makes a modest $30,000 per year can become a millionaire. Consider this, at ten percent contributions, over forty years, with a ten percent rate of return, someone making $30,000 per year could save and invest their way to $1,460,555! That is amazing! And proof that with the right habits both from a saving and investing perspective, many people actually can become millionaires.

So, let your clients dream big… and help them see how they can build the habits of millionaires.

 

Sources:

Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 2009 Retirement Confidence Survey

www.soundinvesting.org, April 2006