Thursday, January 20, 2011

How To Get Wealth When You’re Broke And Over 50

Wealth is not everything.  Wealth with selfishness is loneliness. Wealth does happen to be the easiest path to personal freedom … the freedom to have the time and the means to live life the way you choose to do so.  And the best path to wealth, the one any determined person can do, is to become a passionately smiling tortoise:  Have a mentor and a plan, consistently follow your plan step by step, be alert to adapt to changing conditions as your plan unfolds, and keep smiling – enjoy the journey!  It really is that simple … and that complex.

If the Best Path to Wealth is Slow Cooking … Aren’t I Already Too Late?
You’ve probably seen and heard the facts and figures about accumulating wealth over a lifetime. Here’s a couple of examples:  If you save $2,000 from money earned in a summer job at age 16, then do it again at age 17, 18, and 19 … and then never add another dime, but let it slow cook at average long-term stock market returns until age 65, you’ll have over one million dollars!  If you’re too late for that one, you could save $100 per month every month without fail from your paycheck beginning at age 27, again let it slow cook at average long-term stock market returns, and retire at age 67 with over one million dollars. (These examples are both based on average returns of about 11.5% per year).
Here’s a Plan That Will Work in Just 9 Years

The IRS will allow you to save up to $49,000 per year in a special kind of IRA account called a SEP.  That’s a little less than $4,100 per month.  Even if you count on investments not doing as well over the next 9 years as they have over longer periods in the past, say earning an average of 8% instead of the historical 11.5%, you can accumulate over $642,000 in those 9 years.  The real significance of this is that at 9 years, earning an average 8% per year, you can start withdrawing every month the amount you were saving … every month for as long as you live, without ever reducing your investment balance.  You don’t have to save the maximum for this to work.  Let’s say you are 61 years old and have zero in savings.  If you are willing to work 9 more years, and save for example $1,000 per month during that time while waiting to take your social security for the same 9 years – you could then retire (yes, a little later) but with $1,000 per month coming from earnings on your savings, plus sizably more social security than you would have received taking it early.  If you save $2,000 per month, then you’d have $2,000 per month in earnings on your savings every month for life.  You decide the payout by how much you save for the 9 years.
Hold on a Minute … Last Week You Were Talking About Starting a Business … Now This?
Fair question.  Let me explain by telling you about one of my favorite books - Blue Highways, by William Least Heat Moon.  If the title makes you curious, click here where you can read selected portions of it before heading to your library to check it out (or to the checkout at to buy it, you choose):

I like this book for several reasons.  I love a good road trip, especially one that takes you off the beaten path, where you will see people and scenery you wouldn’t see if you’re in a hurry.   Blue Highways is a good way to imagine the trip in your mind in living color, even if you can’t break away and actually take the trip.
I won’t go into all the other reasons I like the book; actually I’d prefer you get a copy and come up with your own reasons.  I bring up the book here to explain today’s detour in this blog.  I'm a little different than other tax and money writers you may have encountered.  I try to speak in plain English and cover things a little slower so that you can see things you wouldn't see if you're in a hurry.  Here at this blog there will be occasional posts that may seem like a detour, but actually help us get to our destination more effectively ... while enjoying the ride on the way.  I'm looking for readers that like that approach and will share this blog with their friends. 
Last week’s posts gave my 4 all-time favorite tax and money tips. Owning and managing your own business is the best of them because it helps to make all the others possible.  The most common objections I get to this suggestion include “I don’t have time” and “I don’t know what I would do”.  So, I got all excited to give examples of successful businesses run by people with no time who figured out how to convert their favorite pastime into a thriving enterprise.
Today it’s time to back up a step … to talk about why you would want to do this.  You’re probably overscheduled and overburdened now.  Even if you take the leap of faith and believe me that you could successfully do a business, why would you want to?
How Much Are You Saving Each and Every Month Right Now?
For many of us, the answer is you have little or no savings, and an accumulation of credit card debt, car loans, etc.  You do make your monthly payments, and pay off one debt just in time to need to replace the car and take on a new debt.  Your savings plans have started and stopped countless times.
Here’s where having a well planned and managed business can really help you.  Since you are making your payments on what you earn now, the earnings from your business could become your monthly savings.  As a bonus, you will likely qualify for some tax deductions you don’t get now … and the resulting tax savings could also add to your savings.  One of those tax savings, is access to the SEP IRA account I mentioned earlier.  Even if you don't qualify for the IRS maximum $49,000 contribution, whatever you do qualify for will be a welcome added boost to your savings power.
Summary – You Hear About Cutting Back On Soda Pop and Other Indulgences to Save
If you’ve only got a few years to make up for lost time, yes, cutting back will certainly help but you need to do more.  Developing a business is one solid way to get there.  It's not for everyone, but if this has piqued your interest then I’d like to be your coach to help you do it.  Please share your thoughts and comments below, and let’s get started today! 

No comments:

Post a Comment