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5 Secrets to Retirement by Rich – The Motley Fool

Can you come up with $ 10 a day? If so, you may be able to retire with over $ 2.7 million in your name. That's what you would bring to a close by investing $ 10 a day for a 45-year career with an annual return of 9.5%. Given that this ratio roughly matches the level of long-term returns that the stock market has achieved over decades, it is within the realm of possibility. Even if the market returns in the future at an annualized rate of around 7%, 10 USD a day for 45 years would still cost over $ 1 million.

Of course, if it were so easy to get rich, it would all do it, and we would not be in a situation where more than 40% of Americans are at risk of going broke. Obviously, it takes more than a few dollars a day to feel comfortable in retirement. It's not rocket science, but it takes effort and planning. These five secrets will help you improve your chances of getting rich, even if you start from scratch today.

  Well-dressed senior couple drinking wine.

Source: Getty Images.

. 1 Start early – if possible today

Time is the ally of the young investor and the enemy of the older one. To reach the same level of $ 2.7 million in retirement, an investor who is only 15 years in retirement would have to lose around $ 225 a day. That's far more than the $ 10 a relatively young person would need to raise, and that's really only accessible to the highest earners among us.

To be honest, even a high earner will probably not be able to get out of nowhere to sack the $ 6,750 a month indicated by this $ 225 a day. If you have the income, it is easy to get involved in an expensive lifestyle that will ultimately save you from saving. So starting early does not only mean that you can build wealth on a monthly basis with less effort, but also that you let so much more money work for you instead of becoming entangled in your lifestyle.

. 2 Making investment a priority for your future

This daily investment goal? This is really the amount you have to take every day to have the chance to spend a considerable amount of money in your golden years. This includes weekends, holidays, vacations, sick days, and all the other spa bouts and important milestones that life has in store for you.

To have your money put together on your behalf, you need to get it working for you. For example, you must realize that your retirement has a greater financial priority than your children's higher education. You need to be ready to drive in a reliable older vehicle instead of driving a brand new ride. It is fine to spend part of your money on other priorities and to enjoy the finer things in life, but if you do not prioritize investing in your future, you will not create real wealth.

. 3 Make use of all the free money you can.

  Young woman with a lot of money and winking.

Source: Getty Images.

If you invest in a tax-advantaged retirement account, Uncle Sam lets you defer your taxes on your returns. In addition, in a traditional plan, you may be able to raise money before taxes or withdraw your retired money in a Roth plan fully tax-free.

In addition to the money for which Uncle Sam offers you, your supervisor may contribute to your retirement and may also offer you money to contribute to your employer-sponsored retirement plan. 401,000 matches are common, with a typical match being 50% of anything you contribute, up to a percentage of your total. Whether it comes from you, your boss or Uncle Sam, as soon as it's in your account, it will increase for you and bring you so much closer to your goal.

. 4 Keep Your Costs Low

The stock market may have generated returns of around 9.5% per annum in the past. However, this does not mean that the typical investor has received these returns. In fact, mutual fund investors often track returns on the overall market significantly. Much of this is due to the high cost of operating actively managed mutual funds. With the research costs, the churn costs of heavy trading and the marketing costs, the money investors accumulate to hold these funds and reduce the income of these investors.

Instead, focus on a long-term, cost-effective strategy. One of the best ways for most people is to average the dollar cost in low-price index funds. Index funds are typically managed passively, which means they incur significantly lower overheads and research costs. They also tend to trade much less, keeping investment costs low. These lower costs help you get more market returns into your pocket instead of being lost to the cost of managing your money.

By depositing regular contributions – or average costs in dollars – into these funds Buy more stocks when the market is lower and less when the market is higher. This is one of the best ways available to ordinary investors to come close to the old market maxim of "buy cheap, sell high". Keep up the good work throughout your investment career and increase your chances of actually achieving market-like returns on your hard-earned cash.

. 5 Long-term focus

  Man standing on a staircase of money staring into the distance

Source: Getty Images.

While the entire stock market was an incredible creator of wealth in the long run, daily and even annual returns can not be guaranteed. The market can and will decline. For investors with a long-term perspective, market corrections are a good time to buy more stocks. Without this long term perspective, it will be easy to panic and sell in a declining market, "high to buy and low to sell" – just the opposite of what you really want to do. I retired, maybe you have decades to go. While retirees and nearly retirees are likely to want some money in more conservative assets, such as bonds with a timeframe measured over decades, there remains a need to keep money long-term. As a result, stock and equity index funds should not only play an important role in saving you on retirement, but also play a (albeit somewhat different) role in getting you retired.

It's not witchcraft, but it works

If these five secrets seem pretty straightforward, it's because they are. Perhaps the biggest "secret" in the money management business is that there really is no secret to the rich in retirement. It's mostly just a matter of time, money, discipline and patience. Make it a priority throughout your career, keep a long-term perspective, and keep up with the ups and downs of market cycles, and you have a very big chance of success.

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