Depending on your age and economic situation around you, you will need different investment plans to ensure that you make it big before retiring at age 55. It has been suggested that the amount of pre-retirement income you should aim to replace when you leave your job  should be around 80% of the total income you have earned  or at least $1 million.

Depending on your age, medical history, dependent family size and several other factors you may have to start saving very early before the age 55 to retire comfortably. Researchers have shown that those who start saving at an early stage of their  working years will find it more comfortable to retire at the age of 55. No amount is too much or too little to invest. An investment of around $10,000 for 25 years may grow to more than one million dollars or more if followed strictly.

According to researches. A 32 year old may have to save up to $14,000 yearly to be able to have around $2 million at the age of retirement. You may also need to save $10,000 a year outside of your retirement account to be able to have some financial stability while saving for the retirement age of 55. It will be hard to save this kind of money no doubt considering the fact that you will need to pay insurance and settle all other debts and perhaps what you often have remaining is few Hundreds of dollars. The best possible way to save money while earning low income is to set your priorities and make away with some non essential spending.

Most retirees will also receive Social Security benefits that could replace another 20% or 30% of pre-retirement income. For the average wage earner – with an income of $37,000 in 2005 –Social Security replaces about 42% of pre-retirement income; the figure is less for those with higher earnings. That would boost total income close to the 75% to 85% range of pre-retirement earnings generally recommended.

Saving around 15% of your monthly income does not mean you should stress yourself on your salary. There are some part-time jobs you can take to generate some savings. It has been discovered that those who have more than 1 jobs save more for their retirement age. Get some online jobs which will not take much of your time and remember that It doesn’t make sense to stash all of your money in an immediate annuity -especially one that does not increase with inflation because you will wipe out your savings. You can put around 65-70% of your savings in annuity depending on how well you can cope with the financial demands you got. So go ahead and start effecting your plan to retire at 55.

The advantages of passive income opportunities are quite enormous and they include; flexible working hours, unlimited source of income, funding of future retirement and freedom of choice on decision making. Some of the best passive income opportunities for retirement include; affiliate membership opportunities, pay-per-click opportunities, information product and services sales, blogging, Forex Trading, online referral/membership opportunities, work from home administrative jobs, and many more.

The Internet has made passive income generating opportunities much more popular in the world today. Affiliate marketing also seems to be the most preferred among the passive income generating online home businesses. It involves an individual becoming a part of a marketing team online and income generated on products and services will be shared among the affiliate marketing members. The setup is inexpensive and uncomplicated, merchant support readily available, business running costs are low with no need for office rental, leasing of computers and other equipment.

Affiliate membership generates multiple and recurring commissions depending on the sales generated from such affiliate marketing activities, hence the more you join the more passive streams of income generated.

Some people often engage themselves in multiple passive income generating opportunities before or after retirement and such online business include; eBay product selling and buying, eBook publishing, data entry jobs and several others. Most retirees combine many of these online opportunities to generate streams of passive income at their own pace.

Forex trading investment is one of the highest yielding businesses in the world today but it is actually for those who can master the technicalities of trading the world major currencies otherwise you will stand a risk of losing all your investment. Forex trading often make use of two fundamental analysis and those are the indicators and the non technical analysis which involve the use of current news on the values of the currencies and other economic determinants which may affect the value of currencies being traded on FOREX.

Apart from trading in Forex, you can also invest in several other home based business to generate passive income for yourself after retirement, what you need is looking around you and searching for the needs of people. When you discover what people around you need most then you can start supplying such needs and making your money. People who look around them and create wealth, even one million dollars or more, from providing common services to people around them often generate more streams of income for themselves and their families. You just need to think and make researches.

Retiring at the age of 40 could be a real difficult and near-impossibility for most average income earners and they believe such a retirement age are for the super-rich and those who earn more than the average income on monthly basis. Most investment bankers and financial advisors will often advise you to cut around 25% of your gross monthly income and invest it in a kind of balanced index fund and leave it for some specific years. This however may be impossible for extremely low income earners.

If you can refrain yourself from extra spending and invest around 15-25% or more of your monthly income at your early working days, you will definitely have enough to invest or use in starting your own business even before you reach the age of 40. Investing your money in some solid IRA or some share building investments, which allows you to automatically invest money into stocks or funds for just $4 or more.

Another great simple and automatic way of investing is by opening a Vanguard account which allows you to buy a huge variety of index funds like the popular S&P 500. These are viable investments that can make you leave your regular day job even before your each 40.

You need to note that the present annuity factor at age 40 is 17.3163 for an annuity paid for a lifetime only. This means that you will need to contribute around $17,000 on yearly basis if your salary is around a $100,000 a year. This is quite impossible for low income earners who hardly have anything left after paying their bills. It is therefore imperative to have a solid saving culture to achieve the aim of early retirement.

One of the best steps you can take is to ascertain your current monthly income before tax and then calculate how much you have saved and how much you will save from other sources of income. Subtract your liabities from your income and assets and then you will be able to figure out how long your financial resources will be able to last you. It is ideal to have more than one source of income for you to retire at such an early age of 40.

It looks as if saving and investment options are the main ways of retiring early but one wonders how much one will; need to save or invest to retire at the age of 40. If you can save some money and start your personal business before the age of 40, you might want to take a risk by quitting your regular job and building your business to huge success that you can manage after retirement.

When you are able to set up a part-time business before you retire then your mind can be rest assured that you can manage your business on your own and the success depends largely on your dedication. You may even retire long before your 40^th birthday when you start your own business.

Financial experts suggested that deducting around 4% of your retirement account annually without compromising on your principal account and when you retire on 1 million dollars, this means with a retirement account of 1 million dollars, you can spend $48,000 annually. However when you live in a city like New York, depending on $48,000 from your retirement account of 1 million dollars may not be well enough and that shows how some factors may affect your chances of retiring on 1 million dollars. If you live in a smaller apartment unit, you may not even spend up to that on yearly basis and live more comfortably on your retirement account.

Budgeting is such an important factor that determines if you can comfortably retire on 1 million dollars or not. Getting expensive gifts and living large will probably increase your annual expenditure and if you don’t re-invest part of your 1 million dollars you might probably spend more than you ought to spend.

Travelling and vacation expenses must also be cut to a reasonable size if you really want to retire on 1 million dollars. Shopping sprees should also be reduced just get the basic things you need and that will help you spend less from your retirement account. This does not mean you cannot live a good life after retirement-you deserve a good life too and its ideal to enjoy what you have labored for but try invest from such a retirement account so that a monthly streams of income will still be flowing while you are retired.

Retiring on 1 million dollars is all about Prudency and being able to save a substantial amount of money at your early stage of working days. Those who start to save early can retire early and start their own home based business or even invest a substantial part of their retirement income in Annuity plan to generate a constant income for life.

Since people differ in their way of living, therefore it will be pretty difficult to have a standard rules for determining whether they will be able to rely on 1 million dollars retirement account. If you will have to retire on 1 million dollars, financial experts suggest that you re-invest around 40% of the 1 million dollars in annuity and then spend around $40,000 a year to balance up your regular annuity income with the rest of your 1 million dollars retirement account.

Look at your expenses and determine whether $40,000 per year will be sufficient for your city and your expectation of standards of living. I would suggest that if you are still young and active, to shoot for more than 1 million dollars. It used to be enough for our parents but in today’s context, I would need about 2 million dollars to retire comfortably…

I am not saying that one million dollars is worthless, far from it, many Americans still do not have their first million, and may not see it in their life time. However the amount of goods or security that one million dollars can buy has definitely and visibly dwindled. Take for example, the price of our homes. Home prices have risen about 300% over the last 20 years. That would mean that a million dollars used to be able to buy a home three times as big 20 years ago versus today. Taking that as a prime example would mean that one million dollars today is only worth three hundred thousand 20 years ago.

But the more important question that we should ask, when we ponder the worth of our money is whether we are able to grow our money as fast as the annual inflation so as to maintain the value of our cash. If you do not grow your value by the amount of inflation, you are effectively losing the value of your wealth. And in twenty years, the one million dollars underneath your bed would only be worth one third as much. So dun leave your money to fend for itself, it cannot do so within the confines of your cookie jar or even that of your saving accounts.

Invest your money into the stock market would help you grow your money fast but this also comes with lots of risk. The safer bet in the stock market would be to buy the index or others would call indexing. That would mean that you would need to buy into the stock market index. This would be relatively “safe” as the stock market tend to perform well over the long term.

To hedge against inflation, you could also procure real estate. As mentioned above, property prices had risen over 300% over the last 20 years. Buying a good piece real estate can mean staying in line with price increases and maintaining the value of your wealth. Do not let your cash sit idling; make sure your cash is working just as hard as you.

At the end of the day, many people will be asking whether they can retire with just 1 million dollars. It is definitely possible but the standards of living that one million dollars can buy will fall with each passing year. I would bet that one million dollars would not be sufficient in another 10 years time. So be prepared and do your sums right.

I know most of us do not think about retirement planning most of the time and that planning for retirement can sometimes be one of our last priorities when we are faced with loads of work and family issues; myself included. However we should engage some of our time for this activity and anyway planning for retirement should not be a worrisome activity and it can actually be fun thinking about what we want to do after years of working. Retirement with at least one million dollars would certainly be fun.

In this post, I want to address the issue of planning for your income during retirement. For many of us, our plan is to save sufficiently so that we can draw from the nest egg, with whatever we can also withdraw from our corporate pension plans or Social Security, to last us for 20 to 30 years. For others, their plan is to be able to create an additional income source that could either be passive such as rental income or investment returns, or from a home business or even online business such as Ebay or general internet marketing.

My thinking about planning for retirement income is bias towards an income from small businesses and property investment. Small business, especially businesses which provides basic necessities to the people staying in your neighbourhood, are more resilient against market movements but the returns may not be spectacular.

Cafes serving students in the local university or college, local unpretentious hair saloons serving the local community, grocers and even a magazine shop can provide a nice little income while keeping ourselves active. Taking the idea further, this would mean an investment into several of such businesses with or without a few active partners. Even in businesses, I believe in diversification and investing in a variety of businesses, providing essential services, will be a strong component in our retirement plan.

Go look at what the local shops are doing. Talk to the ladies running the hair shop and understand their operations, talk to the manager running the college café and you will see that creating a few little businesses is not a daunting tasks. The income you derive from such small businesses, after paying all your staff, may not buy you that Ferrari but it will be more than enough to pay for that holiday in France and a great bottle of pinot noir in Burgundy. Go try the Boeuf Bourguignon in Beaune and you will love your retirement. We want to enjoy our retirement so go plan for how you will create that retirement income.

]]> http://onemilliondollarsonly.com/2009/01/retirement-planning-how-to-plan-and-create-an-income-during-retirement/feed/ 0 http://onemilliondollarsonly.com/2008/07/how-much-do-i-need-to-retire-is-one-million-dollars-enough/ http://onemilliondollarsonly.com/2008/07/how-much-do-i-need-to-retire-is-one-million-dollars-enough/#comments Tue, 01 Jul 2008 19:11:51 +0000 One Million Dollars http://onemilliondollarsonly.com/?p=13 As you probably know from my previous post, my retirement target is 1.5 million dollars in 11 years time. How did I come up with this magic number for retirement? How much do I need to retire? Is 1.5 million dollars the amount that is needed to live a comfortable retirement? What about for yourself? Do you also need 1.5 million dollars in order to retire? Does it mean that if you are short of the 1.5 millions, you got to either rob a bank or slog till you drop?

First of all, 1.5 million dollars is a personal target. How much do I need to retire is dependable on my situation or context as well. My context is likely to be different from you. My country of residence is Singapore and while I may move to another place when I retire, I have to make sure that in the event I decide (or my wife decide) that we should still stay on in this highly expensive country to live in, we have more than sufficient to live comfortably.

Retirement Expenses

My expected retirement expenses will be reduced but unlike many whom have preached that all of us should see a significant cut in spending when we retire, I expect only a marginal reduction. Rather my expenditure patterns will change when I focus on different things in life and spend my money and time on different things. The key is that I will not be eating out less nor will I be shopping less for gadgets. Dun even bother telling my wife to stop buying those hand bags of hers, we are already running out of shelf space.

My key expenditure will be on Food, Transportation, Leisure and Medical/Insurance. For Food, I expect myself to continue to eat out often. This will incur about $2000 per month. Eating is one of my leisure activities as well ? and I seek out good places to eat as one of my favorite past times. For transport, cars in Singapore are horrendously expensive and I do not fancy large fuel guzzlers. I will likely buy a compact fuel savings Honda or Toyota and this will likely cost me $1500 per month; fuel included. As for medical or insurance, I have a hospital plan and term life insurance that cost me minimal currently but I expect the costs to go up to about $500 per month. And on top of these expenses, I intend to spend up to $2000 per month on leisure; travel, shopping, golf etc. These numbers seem general but I have made numerous calculations and predictions (using inflation data) and these numbers should be pretty close to what I will need. All in all, $6000 per month will be just nice. If you asked about my kids’ education or my housing mortgage, I have catered a savings and investment plan separately and will have sufficient funds for a local university education for my child and will also see my mortgage paid fully in 11 years time.

The numbers that I present above will differ for you as our priorities are different. But the key message that I would like you to take away is that we should not be planning retirement as a life in rags but rather we should be planning for a 20 to 40 year vacation. Otherwise we might as well continue to work. I am not saying that working during retirement will be taboo. I am likely to continue to keep myself active by starting businesses and taking part in more social work. Getting an income or profits will also allow me to splurge even more, although the target is to achieve $1.5 million dollars or a $6000 per month withdrawal rate at the age of 45.

How much do I need to retire? How to have $6000 per month during retirement?

Reading the above paragraph, you will probably understand how I arrive at a target of $1.5 million dollars. The goal is to create an investment fund size of $1.5 million dollars when I hit 45 years old so that I can see a withdrawal of $6000 per month or $72000 per year. This is a 4.8% withdrawal rate, which I perceived to be sustainable without drawing down my principal amount of $1.5 million dollars.

The retirement plan will be to continue to be aggressively invested while putting aside 5 years of expenses aside. This will allow me to keep

$1,140,000 in a moderate to aggressive investment portfolio (mainly equities)
$360,000 for 5 years expenses

I will further breakdown my $360,000 into 2 pool. $72,000 for the first year’s needs and keeping the remaining $288,000 in foreign currency deposits. Currently Aussie and New Zealand currencies are attracting the highest return of 8% with relative stability without even taking into account the appreciation. By taking this retirement strategy, I will foresee a need for my main investment of $1,140,000 to return 6.3% annualized over 5 years in order for my retirement to continue without eroding my principal. I expect this to be not only achievable but to also surpass this target. Otherwise I will fire my financial planner

Ok. I hope I have articulated why I think I need $1.5 million dollars to retire and hopefully this let you also start to think about how much you will need for retirement. Start thinking about it early so that you can plan ahead. If I had started 5 years ago, I would probably be able to retire by 40 years old, but 45 years old is still not too shabby. I am going to write another secret cheque to myself to keep my inspiration alive ?

Save and Invest

This is definitely my current plan. I intend to accumulate 35% of my paycheck and weigh my investment towards equity funds for the next 11 years. With a projected annualized 5% returns on my annual investments as well as on my current investment pool, I am expecting approximately $1.6million dollars. Any returns above 5% will be added bonus J

Trade Forex

I have had a lot of experience trading derivatives and foreign currency exchange. It is a highly leveraged and risky venture but has the potential to offer astronomical returns. Can I make a million dollars from trading forex? I believe that it is entirely possible but a sizable proportion of my time must be devoted to monitoring the currency markets. Can I afford the time? I am unsure.

Trade Stocks

Trading Stocks is an attractive option as well. I have limited success with trading stocks and am trying to derive a strategy of stocks trading that will not require my daily attention. A weekly or monthly trading frequency will be highly suitable for my lifestyle and schedule. Is it possible for me to earn a million dollars from trading stocks? I think I am unlikely to trade with sufficient size such that the returns will be large enough to earn a million dollars. My current thinking is to devote only $50,000 to a non-leveraged stock trading account and to invest/trade in dividend yielding stocks.

Trade Options

I have an account with interactive brokers which I have left dormant for about a year now. A year ago, I was trading options actively but realized that I had to devote my entire waking hours to this effort in order to achieve any tangible rewards. Basically I burn out trying to trade options actively. This is still an option for me to accumulate my fortune or one million dollars but I would like to find a more laid-back strategy before committing my funds again.

Make Money Online

My graduate degree was on computer engineering and I was always attracted to the idea of making a living online. I have tried affiliate marketing using paid-per-click on google and yahoo and have only broken even. Recently I am trying to utilize google adsense for this blog as well as some hubpages and other sites and is starting to see some results. My assessment is that this is a very possible wealth accumulation strategy for my million dollars venture. Not only that, it would be possible for me to even create a passive income stream that can allow me to retire comfortably. I will be working hard on this strategy.

Gamble & Lottery

Definitely I will be buying my weekly lottery tickets and hoping for the best. But I am not about to put my hopes of retirement on a lottery tickets. Well maybe I can daydream about it each time I buy a ticket but this can never be part of my plan to retire. Any winnings will be a bonus to buy a nice dinner for the family or maybe a vacation to Switzerland..LOL.

Start a Business

Starting a business is also one of my dreams. I have explored a couple of possibilities and have come to the conclusion that it is very possible to setup small scale businesses which requires little maintenance by partnering with skilled and trustworthy people. For example, I have met with a hair dresser who is able to run a small-scale hair saloon but does have neither the capital nor the desire to start her business. She is an honest person whom I feel can be trusted to manage the business and a few employees. This would then create a passive income stream once the business picks up. Incentivizing her with profit sharing will allow me to start the hair saloon with her skills as a competent hair dresser as well as a shop manager. This is an idea still in the conceptualization stage and I would love any comments.

The above ideas are what I can think of from my own experience. If anyone has ideas for earning a million dollars, please share with me through the comments. I will keep you in my mind when I have earned my first million dollars .