You are right in the middle of your career. In an age where retirement just seems like a distant dream, there is one thing that you can do right now to retire by 50.
You might have been told throughout your career that saving money is good. To build enough wealth to retire, you need to “save money”, they said.
While this is not necessarily bad advice, it’s also not entirely accurate.
Yes, saving money is always a good thing, but saving money also doesn’t build wealth. Instead, it merely keeps it.
To retire, we cannot just keep the wealth we earn. We need to put our income to work throughout our career so our wealth grows all by itself. We should not let our money sit there in a savings or checking account just waiting to be spent at some later date. And, this is especially true if you want to retire by 50, which is a good 12 to 14 years ahead of the average.
What to do to retire by 50
To retire by 50, put your wealth to work for you. The idea is to build wealth as quickly as we can so we can call it quits well before traditional retirement.
And, we do this through the power of investing. It’s all a part of the wealth-building equation.
A variety of different types of investments exists, such as:
- Stocks and bonds
- Mutual funds
- ETFs (Exchange-Traded Funds)
- CDs (Certificates of Deposit)
- Real Estate
- Cryptocurrencies (like Bitcoin)
Investments help us build retirement-enabling wealth because as our investments appreciate in value, we earn money. For example, if we invest $1,000 in an asset (ie: a share of stock) that appreciates by 10%, we just earned $100. Boom, the power of investing.
Though making money on our investments is not guaranteed, the average 10-year stock market return is 9.2%, according to Goldman Sachs. Over the long term, growth in the market averages about 10% annually. This means for most of us, investing works.
Investing in appreciating assets is why millionaires are millionaires. They don’t earn millions. But, they have acquired millions through a combination of salary as well as investments.
Building wealth requires risk
One of the most important factors in building wealth is accepting a certain level of risk.
Stashing the majority of your money in a bank is a sure-fire to be poor. Why? It’s the power of inflation. Over time, inflation continuously eats away at the spending power of money. In other words, each dollar is worth less than it was the year before.
Even when you can find an interest-bearing savings account, the interest generally will not keep up with inflation. This means that you’re losing money each and every year that your money is not invested.
Statista says that inflation is projected to chew through between 2% and 3% of your money each and every year through 2022. To put that number into perspective, this means $1,000,000 in a non-interest-bearing bank account loses $20,000 to $30,000 in spending power every year.
As a result, building wealth generally requires risk.
Examples of these risks include investing in the stock market or real estate, starting your own business, or buying precious metals like gold in the hopes that they increase in value. There is potential for losing money. But, history has shown that when investors invest in the stock market over the long term, they generally make money.
How can you start putting these pieces into place now so you can retire by 50?
Invest in your company-sponsored 401(k) (if you aren’t already). Many companies offer 401(k)s, and some will even match a certain percentage of your contributions. This is free money, so definitely take advantage of that. Also, a 401(k) reduces your taxable income, which is never a bad thing.
Open up a Roth IRA. A Roth IRA is a special type of investment account that is post-tax, which means there are no immediate tax advantages. However, your money will grow tax-free and offers tax-free withdrawals in retirement.
Consider opening a brokerage account. If you already have your 401(k) and Roth IRAs funded, brokerage accounts offer even more investment options. Companies like Vanguard and Fidelity offer brokerage accounts that allow investors to invest more of their money.