We’ve all seen inflation tolling our wallets for quite some time. Fewer people feel confident about paying their monthly bills, and most Americans are cutting back wherever possible to make ends meet.
But did you know that even millionaires are struggling financially now? A recent report by NBC shows that 35% of high-net-worth individuals (HNWIs) say their retirement savings aren’t enough.
With even the 1% struggling, do average Americans still have the possibility to retire comfortably one day?
Let’s delve into NBC’s report findings and explore practical ways to make it possible.
$1 Million Isn’t As Much As You Think
While a million dollars is still a massive chunk of change for most people, it’s not worth as much as it once did.
Even in 1990, $1 million was worth more than twice as much today. Regardless of inflation rates returning to normal levels, you’d still see your money lose value over time.
Most Americans now believe a retirement fund of $1.25 million would be the bare minimum needed to retire comfortably, with many HNWIs acknowledging they’ll need to work longer to reach this target.
The 4% Retirement Rule Does Not Reflect Today’s Living Costs
A common rule of thumb for retirement is to have the ability to live off 4% of your entire investment portfolio without having to dip into savings.
So if a couple has $1 million worth of investments, they’d have to make do with about $40,000 annually.
But $40,000 a year is well below the median household income. Most families, especially those with high incomes, would need to downsize or dip into savings to maintain their lifestyle.
Start Saving For Your Retirement Today With These Practical Tips
With retirement becoming increasingly tricky for millionaires, is it entirely out of reach for the average American? It might take some effort, but these steps can help you build a nest egg for your golden years, regardless of your financial situation:
Live Below Your Means
Thomas J. Stanley, the author of The Millionaire Next Door, says it best, “Whatever your income, always live below your means. Millionaires often build wealth by not spending a fortune on their primary residence, thus making them less likely to live in affluent neighborhoods.”
Just because your household makes $100,000 a year does not mean you should be spending that much, especially if you plan on living solely off your investments.
A larger down payment on a modest house or maintaining your old car can free up your income sooner and help you reduce costs when it’s time to retire.
Give Geoarbitrage A Try
If you’re living in a high-cost area, relocating could save you thousands of dollars you could be putting toward your retirement fund!
Geographic arbitrage, or geoarbitrage for short, has become popular in recent years with the rise of remote work. With some countries being over 50% cheaper than the US, you could live a comfortable life and meet your long-term financial goals in no time.
If living abroad isn’t for you, there are plenty of affordable US cities where you can save money and enjoy high-quality living for less!
Maximize Your Roth IRA Investments
An Individual Retirement Account (IRA) is one of the simplest ways to make your money start working for you.
Unlike traditional savings accounts with close to zero return rates, an average Roth IRA can give you an average of 7-10% of returns annually. You can invest that money in stocks, ETFs, bonds, and other investments.
Roth IRAs will also let you take out your initial contributions tax-free at any time or start taking all your money out tax-free once you hit retirement age. It is much more flexible and tax-friendly than a traditional 401k, which will tax your earnings when you retire.
The Bottom Line
Inflation and rising living costs have been problematic for everyone, no matter how much you make. Even a million dollars in today’s economy doesn’t mean as much as it once did.
But don’t let a tough financial market stop you from being resourceful and finding creative ways to save for your golden years. Nothing can stop you from reaching your financial goals if you’re committed and focused on your long-term plan!