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How to Save a Million Dollars at Any Age: 45 Years Old

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If you’re 45 years old right now and working, perhaps you’re starting to consider when and how you’d like to retire. Kiplinger’s Personal Finance magazine has some suggestions if retiring with $1 million is art of that game plan. Keep in mind the role inflation plays; $1 million is a good goal, but twenty years from now, it might enough to fund an entire retirement unless you find a way to reduce your expenses. You have to start somewhere, however.

With no savings at 45, you’ll need to accumulate $1,698 in your portfolio every month to meet this goal. If you have $50,000 set aside for retirement, your monthly contribution will be only $1,298. With $100,000, a 45 year old can likely start retirement with $1 million by saving $861 per month.

Obviously, reaching this goal is more difficult the later you start. If anything, this series should be a wake-up call to those with half-a-century until retirement; unfortunately, that’s not the target audience of this particular magazine.

Here are the strategies Kiplinger’s Personal Finance suggests for 35 year old, a category in which I will find myself in just a few short years:

* Contribute up to $15,500 in a 401(k). Thinking back to when I was 25, I was earning under $30,000 at a non-profit organization in New Jersey. Even if a 401(k) had been available, maximizing my contribution to the IRS limit was practically unthinkable. For a 45 year old in the middle of a career, this strategy may be more attainable. At the very least, if your company offers an employer matching contribution, take advantage of that.

A full contribution to a 401(k) requires almost $1,300 per month.

* Adjust your asset allocation to 80% stocks, 20% bonds. For my preferences, I think even at age 45 there should be less emphasis on bonds. With a large amount of time before retirement, and particularly before the end of retirement, it would be worthwhile to keep a riskier portfolio weighted heavier in stocks. Not only do your funds have to last until retirement, they have to last through retirement. While I stock market downturn towards the end of your career could derail your investments, I probably wouldn’t do much to add bonds into a retirement portfolio until there are 10 years or less until retirement.

* Don’t put your kids’ college costs ahead of retirement. I’ve discovered that this is a mantra favored by most financial advisers. While you or your kids can take out loans to help fund their education, you can’t take out loans to fund your retirement. Does more need to be said? Maybe. If the choice is between helping a relative fund an education they wouldn’t be able to receive otherwise and my own personal retirement luxury, I may opt to assist with the education. This will always be a personal decision.

45Every time I’ve presented this Kiplinger series so far, with suggestions for 25 year olds and 35 year olds, commenters have pointed out the devastating effects inflation has on funds. I’ve covered this many times. In fact, forget about the official core inflation data presented by the government. The price of the things you’ll need to spend money on as you grow older, such as health care for instance, are going to increase at a much higher rate than 3%. Forget about calculations that tell you the future value of $1,000,000 based on 3% inflation. But don’t stop saving for retirement.

No, if your time horizon for retirement is decades in the future like mine, $1 million will most likely not be enough to support my necessary expenses. Aim higher if you can, but you have to start somewhere.

Image credit: ohsoabnormal
How to Make a Million at 45

Updated January 16, 2010 and originally published February 6, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar fortworthcheapo

>>you can’t take out loans to fund your retirement

Not to complicate things to much, but this is not longer a 100% correct statement. The Reverse Mortgage actually allows a senior to get a fairly substantial amount of money out of their home in later years. You’re eligible for more money the older you are.

This isn’t necessarily an ideal retirement plan – the product is pretty expensive in terms of fees and could only fund a portion of retirement, but it can be a useful financial tool for seniors who own their home outright and need extra funds.

And I’m neither an advocate or a salesman of reverse mortgages, just trying to make things more complicated. :D

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avatar Dan

Flexo,

It is terrible advice to forget what a million dollars will be worth when you plan to retire. Better advice is to quit aiming for a million dollars or any other dollar figure not based on your anticipated expenses in retirement. To properly anticipate your expenses, you have to make an adjustment for inflation.

The Kiplinger article is bad advice. It gives people a lofty expectation that will not pass the test of time (inflation). Telling a 25 year-old that he/she can get rich by investing $286 per month is border-line unethical. People think in the now. They read these articles and think about what $1 million is worth now versus what $286 is worth now. Your ends justifying the means argument that you have to start somewhere is little better. Yes, we all need to start somewhere and we all need to save for retirement. Motivating people to do so by telling them they can have a million dollars with minimul effort is what is wrong with personal finance professionals today. Right now, most retirees are not millionaires. If we adjust the term millionaire for inflation, then in 20, 30, and 40 years, most retirees will not be millionaires. The only difference is that they will be disillusioned because they followed all of the advice given to them by articles like this, yet somehow their $1 million dollars isn’t giving them what they expected.

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avatar Computerdiva

I love your blog, but am confused. Is this for a 35 year old, or a 45 year old?

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avatar Luke Landes ♦127,475 (Platinum)

Dan: Articles like these in Kiplinger’s make no mention of inflation. That is not a good thing. Personal finance advisors and the “savvier” media talk about the future value of $1,000,000. In 30 years and a 3% inflation rate, that $1,000,000 will only be “worth” the same as about $400,000 with today’s purchasing power. But even this assumption is wrong. 3% inflation doesn’t truly reflect the increase in cost of what you’ll need. People with moderate lifestyles can’t retire on $1,000,000 now; they certainly won’t be able to 20, 30, or 40 years from now. Forget about $1 million and guesses at the future value of $1 million; it will be irrelevant to retirement. (But still, it will be better than nothing.)

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avatar Luke Landes ♦127,475 (Platinum)

fortworthcheapo: Interesting notes about the reverse mortgage, thanks. I’ll have to look into that more.

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avatar Dan

Fair point, Flexo. By the same lines, the projections of the future value of the nest egg must also be forgotten for they are mere estimations based on past stock market returns.

The assumption that $286 per month (or whatever amount) will turn into $1,000,000 is wrong and the assumption that $1,000,000 will be worth $400,000 (or whatever amount) is wrong. The only real truth in the equation is the $286.

Personally, I allow myself to use the assumptions to help plan for my retirement. But, I strongly recommend that if you choose to use the assumption that your portfolio will return 8-10%, you should also assume some inflation (the average over the last 90 years is 3.4%). Otherwise, you will experience expectation inflation, and a crash when it’s time to retire.

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avatar Ron

There are always bad assumptions in these kinds of articles. Your cheese may be slipping off the cracker if you think saving $286 from any age will give you a work-free retirement. Your savings rate must grow in correlation with your income.

When I started in my field 25 years ago I made $12,000 per year. Now I’m making in the low six-figures. The entire time I’ve been saving a minimum of 10% of my pay. Many years I was able to save much more. But my point is by fixing a set percentage instead of a dollar amount I’ve kept pace with or beat inflation.

Ron

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avatar Lisa

I like that you give specific dollar amounts here. What interest rates do you use in making the calculations?

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