The Retirement Lie: You're Never Going to Save Your Way to Retirement | INVESTED MOM

We've all been told the retirement lie - that we can just wait until we're 65 and everything will be taken care of. But that's not the reality for most of us. The average North American only makes $1.6M in their lifetime, which means you will never save your way to retirement. Even if you saved 100% of your paycheck for the rest of your life, you wouldn't hit a number necessary for a comfortable retirement.

A recent study by the National Institute on Retirement Security found that the majority of Americans are woefully unprepared for retirement. Nearly half of all workers have less than $10,000 saved, and one in four have no retirement savings at all. For many people, the notion of retirement is nothing more than a pipe dream. The reality is that most people will never be able to retire, regardless of age.

So what can you do? It's time to start thinking about retirement differently.

Instead of relying on savings alone, you need to start investing. And not just in stocks or mutual funds - but in yourself. You need to learn how to get your money working for you. How to create multiple streams of income. And most importantly, how to think like a millionaire because to retire comfortably, you'll need to be a millionaire.

Create a vision for your future self. What does your ideal retirement look like? What kind of lifestyle do you want to have? Once you have a clear idea of what you want, you can start working towards it.

There's no magic number when it comes to retirement savings, but North Americans are expected to need $1.7M on average to retire, and that will require you to build wealth beyond an RRSP if you're in Canada, and a 401 k or a Roth IRA in the US if you want a secure retirement. The financial decisions you make now will drastically influence whether you can go beyond just getting your basic needs met in retirement, and have enough resources and accumulated wealth.

So that makes retirement about money, not about age. Read that again.

If you want to retire a millionaire, you need to start thinking and acting like one. It's not about how much money you make - more money means nothing if you're not meeting your financial goals or paying yourself first - it's about how you invest money and grow your wealth. And I'm not talking about get-rich-quick schemes. And Saving money isn't going to be enough either. Sure, you have to save money before you can invest it, and extra money is good for an emergency fund, but making money for the long haul is about building wealth and dramatically impacting your financial security.

What is wealth building?

Wealth building involves generating money through diversified sources. It's not just income from your 9-5 job, but savings, investments, and income-producing assets. Wealth building is defined as using proper financial plans and an awareness of future financial objectives. Many people are using wealth building as a means of protecting the future of their families financially. Read more about how to build wealth when you don’t know where to start.

Why saving isn't enough.

Looking back at the S&P 500 from 1991 to 2020, the average stock market return for those 30 years is 10.72% (8.29% if adjusted for inflation). That would have turned a $10 000 investment in the stock market into $245,747.67 without any additional contributions. Now compare that to leaving your money in a savings account at 0.01% or — gasp — under the bed, your money would be worth less than $10 000 accounting for inflation and high fees associated with maintaining a saving account.

So what are some steps you can take to start building your wealth and adopt a millionaire mindset? Here are a few ideas:

Reduce your bad debt.

What's bad debt?

Bad debt is any debt that has a high-interest rate and is not tax-deductible. This includes credit card balance, personal loans, and payday loans. For example, if you have a credit card with a 20% interest rate and you only make the minimum payment each month, it will take you years to pay off the high-interest debt and you will end up paying hundreds or even (more likely) thousands of dollars in interest. Instead of wealth building, people are spending all their money on high-interest debt and high fees that will keep them in a vicious cycle away from financial freedom.

On the other hand, good debt is any debt that is tax-deductible and has a low-interest rate.

This includes student loans, mortgages, and business loans. Good debt can help you save money in the long run by allowing you to deduct the interest on your taxes and by giving you a lower interest rate so you can pay off the debt more quickly. The best way to reduce bad debt is to avoid it altogether by only spending money that you have earned and by investing in yourself so you can earn more money.

You can also use good debt to pay off the bad debt by taking out a personal loan with a lower interest rate and using the money to pay off your high-interest credit cards. By doing this, you will save money on interest and be able to pay off your debt more quickly. Finally, remember to always pay more than the minimum payment each month to reduce the amount of interest you will pay and speed up the process of becoming debt-free. This may involve making some sacrifices in the short term, but it will be worth it in the long run.

I want to take a moment to address student loan debt.

Depending on how you view it, student loan debt can be seen as good or bad debt and it's certainly been a hot topic in the news, in politics, and even Heads of State in North America have weighed in. It's clear: we have a student loan debt crisis in Canada and the USA to the tune of trillions of dollars. Yes, trillion with a T.

But hear me out. If used responsibly, it can be good debt. By investing in yourself responsibly you can grow wealth through a higher earned income. Having a post-secondary education can also help you get more employer offers, and can dramatically impact your ability to earn six figures and beyond. People with higher education typically earn a high salary and are better equipped for a career change if presented with the opportunity or need. Your annual income can have a dramatic impact on your ability to build wealth.

Should I pay off debt or invest?

It is usually wise if you have high-interest debt like credit card debt to repay it before investing. When your debt is settled, redirect it into saving and investing. Try to pay your credit cards balance every month as much as possible to keep your debt low.

Start learning about investing in the stock market to build wealth
Whether you are a brand new investor or someone who has been dabbling in the markets for a while, there are always new aspects to learn and master when it comes to investing. Investing is one of the most important things you can do for wealth building.

But what is investing?

Investing is putting your money into something (usually an asset) with the expectation of getting a return on your investment. It's building wealth over time. This can be done in many different ways, such as buying stocks, real estate, bond funds, or businesses.

The best way to start investing is to educate yourself on the different types of investments and then start with a small amount of money. You can also start investing by taking advantage of employer-sponsored retirement plans like a 401 k or 403 b or if you're in Canada, RRSP retirement accounts. These types of plans offer tax benefits and often have employer matching, which can help you grow your investment more quickly by growing your retirement accounts. If you don't get employer matching, you may be better off investing in a self-directed account with your bank or an online brokerage.

To get started on the self-directed path, the first thing you need to do is open an investment account with a reputable brokerage firm. This will allow you to begin building your investment portfolio and accessing investment returns that can help grow your wealth over time.

Investing doesn't only have to be about the particular stocks in the stock market or mutual funds (or mutual fund shares). You can invest in a mutual fund (although I think there are much better ways to invest your money with some financial education), but there are other strategies too. ETF's and Index funds are a diversified, low-cost, option if you want to take a passive role in your investing.

Even Warren Buffett considers an S&P 500 Index Fund to be the best investment for the majority of people. The reason is twofold. He says:

"Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”

And second, most people who are paid to produce higher returns than the indexes (mutual fund managers, financial advisors etc.), can't outperform the stock market.

Personal finance is personal, so research investment vehicles that you are capable of understanding.

If you want to take a personalized approach to investing, you need to learn how to properly research potential investment opportunities and analyze their potential risks and rewards. This involves understanding key financial metrics such as price-to-earnings ratio, return on invested capital, and so on. It also involves developing a solid investment strategy that aligns with your risk tolerance and long-term goals. You can get the help of a certified financial planner, financial advisor, or investment advisor, but I believe you're capable of learning how to invest, just like I did.

Each person or family will have their own set of individual circumstances to consider, but coming up with a financial plan to build your wealth doesn't have to have you running for the hills. With discipline, patience, and the right knowledge, anyone can start learning about investing and put themselves on the path toward building wealth. Earned income through investing will help to build wealth and provide financial stability.

Retirement planning doesn't have to be hard or scary for you to get the retirement benefits you need for a comfortable retirement. If you don't know where to start, check out my 10-Step guide to a financially free life. It's free and packed full of everything you need to know to set you on the right path to wealth building.

Audit your finances for retirement planning and wealth-building.

Audit you finances.

This involves taking a close look at your income, expenses, and assets to determine where you can make changes that will free up money for retirement savings. For many people, this process can be eye-opening, as it reveals how much money is being wasted on unnecessary expenses. However, making even small changes in your spending habits can have a big impact on your ability to save for retirement. In addition to looking for ways to reduce your expenses, you should also try to increase your income. This can be done by creating passive income or earning additional income through side hustles. By taking the time to audit your finances, you can make retirement planning easier and improve your chances of building wealth over the long term. Even small changes can add up over time and free up more money for retirement planning.

Create a values-based budget.

One of the most important things you can do to grow your wealth is to create a values-based budget and stick to it. A values-based budget is a plan for how you will spend your money each month prioritized based on your values. This includes auditing all of your income and expenses. Track your spending and make sure that your expenses are in line with your goals and your values. Short-term sacrifices will lead to long-term abundance.

Creating a budget may seem like a daunting task, but there are many resources available to help you get started. There are also many different ways to create a budget, so you can find one that works best for you. Once you have created your budget, the most important thing is to stick to it. This means tracking your spending and making adjustments as needed.

If you're not sure where to start, you can start by using the 50/30/20 rule. This means that 50% of your income goes toward essentials, 30% goes toward your wants, and 20% goes toward savings and repaying debt. This is a great starting point for creating a budget that works for you and can be edited as you become more sophisticated in your spending and investing.

Start building multiple streams of income.

This can include things like investing in real estate, starting a side hustle, or even earning interest on other investments. There are plenty of other assets to generate income and pump free money into your retirement account if you're willing to do the research and study the financial markets. The average millionaire has 7 streams of income.

Asset allocation.

Most financial advisors will tell you to have a diversified portfolio and will try to sell you financial products based on mediocre past performance or even recommend brokerage services that have a Robo advisor managing your money. Many Robo advisors don't beat the market rate of return. So you may have some expenses saved by going with a Robo advisor, but your rate of return over the long term will be lower than what you could achieve on your own.

Real Estate Investing.

Real estate is a tangible asset that can appreciate over time. This means that your investment can grow, providing you with a nest egg to help fund your retirement. Additionally, real estate can provide you with a steady stream of income through rental income from tenants or Airbnb hosting. This can help to supplement your other retirement income sources, such as social security in the US, or Old Age Security and CPP in Canada.

Another benefit of real estate investing is that it offers the potential for tax breaks. For example, you may be able to take advantage of depreciation deductions if you own rental property. This can help to lower your overall tax liability, leaving you with more money to put towards your retirement.

In another example, in many cases, the interest on a mortgage could be tax-deductible. And when you sell a property, you can often do so without paying any capital gains tax. A good, investor-focused, accountant and lawyer can advise you on how to accomplish this.

Finally, real estate investing can be a relatively hands-off way to generate income. Once you've bought a property, you can hire a professional management company to handle the day-to-day tasks of renting and maintaining the property. So if you're looking for a retirement strategy that will provide income, appreciation potential, and tax benefits, real estate is worth considering.

Or it can offer the opportunity for someone to be their own boss. If you invest in rental property, you will be responsible for maintaining the property and finding tenants. This can give you a sense of control and purpose in retirement, while also providing additional income.

Building wealth long-term.

Chasing quick fixes will only set you back in the long term. Teach yourself high-income skills like investing. Stay dedicated to your plan, and be patient. Your thoughts control your life, be mindful about what thoughts you create space for.

So if you're thinking about (early) retirement, focus on building your wealth. Focus on how much money you need to have, to generate recurring revenue. And if you don't have enough, start now. Because the sooner you start, the sooner you can retire, no matter what your age.

Do you have a retirement plan? What were your key takeaways? If you found this post helpful, please share it with your friends. :)

Happy (early) retirement!

Stay Invested! xx