How much do you need to retire? The amount varies, but Fidelity’s rule of thumb seems to line up with the general consensus that you should have 10x your income saved up by age 67.
By age, this is where you should be according to Fidelity.
Example:
- Income: $300,000
- Amount you should have saved by 67: $3,000,000
- Monthly allocation over 25 years of retirement: $10,000 ($3,000,000/25/12)
How Much You Should Have Saved by Age
Target: $3,000,000
Savings by Age:
Age 30: $300,000
Age 35: $600,000
Age 40: $900,000
Age 45: $1,200,000
Age 50: $1,800,000
Age 55: $2,100,000
Age 60: $2,400,000
Age 67: $3,000,000
Where do you stack up?
Based on your age, are you ahead or behind schedule when it comes to the amount you should have saved?
Important Question
What if you want to have $3,000,000 saved at retirement but you only make $200,000 a year? You want to have $10,000 a month for 25 years at retirement, but if you don’t make $300,000 a year, the general guidelines for how much you need to have saved by age 67 won’t get you where you want. In other words, if you need 10x your income by age 67 and you only make $200,000 a year, that only puts you at $2,000,000 at retirement. Conventional wisdom may tell you that $2,000,000 may be enough for you to retire, but you don’t want just enough. You want peace of mind and, if possible, to leave something for your heirs.
If you don’t see your salary making big jumps during your career, you will have to find other sources of income in order to keep pace with the suggested savings milestones. In other words, you have to find a way to increase your income from $200,000 to $300,000.
But you’re thinking to yourself that there aren’t enough hours in the day to take on more work or to take on another job. What are your options?
Investing for Passive Income
The key to retiring on schedule—or even ahead of schedule—is to put your money to work for you. In your job, you’re working for your money. You’re trading time for money. When you learn to flip the script and put your money to work for you, you’ll be able to buy your time back.
“If you don’t find a way to make money while you sleep, you will work until you die.” -Warren Buffett
When people invest in the stock market, they’re investing in growth. They’re hoping that the price of their stocks will increase and that when they sell them, they’ll be able to profit.
The problem with stocks and stock-based retirement plans like 401(k)s is that stocks can be volatile and are based on timing, and if you have the timing wrong, a market crash or downturn can throw a wrench in your retirement plans, like in 2008 when the stock market lost more than half its value. Those who were planning to retire in 2008 and live off their 401(k)’s were suddenly faced with the reality that half their nest egg disappeared overnight.
Investors who retire early or on schedule invest differently than the rest of the pack. Instead of investing for growth and appreciation in stocks, they invest for income—passive income. This is how the ultra-wealthy invest, and it’s how everyone who wants to retire early or on schedule should invest.
The ultra-wealthy invest for income, and they favor two assets above all others for generating passive income: commercial real estate and investments in income-producing private businesses (i.e., private equity).
Investing for passive income is essential for retiring early because of the compounding power of a consistent and reliable income stream. And for consistency and reliability, no asset matches the performance of cash-flowing real estate, which has proven its worth over time.
Cash flowing real estate provides a steady income stream through rent, offering long-term financial security. Income-producing real estate ensures consistent cash flow over extended periods. This passive income can be reinvested, driving the compounding effect essential for wealth accumulation.
Cash-flowing real estate that generates predictable and stable rental income can be reinvested into additional properties to create additional streams of passive income to compound wealth. Moreover, as rents increase over time, this income also increases, providing a buffer from inflation as well. This ability to reinvest passive income to create additional streams of income accelerates wealth exponentially to narrow the timeline for retirement.
In addition to cash flow, income-producing properties also appreciate over time, adding another layer of profit and returns. Savvy investors also use leverage—bank financing—to expand real estate holdings and, in turn, amplify returns. Bank loans pay for themselves as rental income is used to pay down the debt.
Where are you in terms of how much you have saved for retirement? If you’re behind schedule or want to accelerate the timeline for retiring and don’t have more hours in the day to work, consider investing for income. Instead of investing for growth like with stocks, consider investing for income with a consistent and reliable asset like real estate that not only offers growth but income that can be reinvested to grow wealth exponentially.
