How to Retire With Little To No Money

You don't necessarily need a lot of money to retire.

Retirement investments and savings are less about how much, and more about why. How you choose to live life, simple or luxurious, is the most important issue.

Reference Disclaimer: Not Financial Advice

According to USAFacts.org, nearly 50% of Americans have no retirement savings in 2022.

In 2023, over 1 in 3 Americans, or about 36%, were not considered financially literate, indicating a significant portion of the population may struggle with making informed financial decisions, including those related to retirement planning, according to Ipsos

This article will hopefully explain the why and how of retirement savings and investments. 

You’ve Heard Retirement Savings Are Important, Here’s Why

Retirement planning is often put off until it feels more pressing—usually when we hit our 50s or even later. However, the conversation around retirement needs to start earlier, particularly as you enter your 40s. 

Life after work should be a time of enjoyment and fulfillment, not stress and penny-pinching. 

Retirement today is vastly different from what it was a few decades ago. It no longer means the end of all work; for many, it’s a phase of life where you can pursue passions, volunteer, or even start a new career. 

Of course, with age, there are often health issues. Medical costs typically increase, and having a solid retirement plan helps cover these expenses without depleting your savings.

Relying solely on Social Security or employer pensions can be risky. These benefits are often insufficient to cover all retirement expenses and usually don’t keep pace with inflation. 

Retirement is also a time to think about estate planning and the legacy you may want to leave. 

You’ve Also Heard To Start Retirement Savings Early

The big advantage of beginning early is the benefit of compounding interest over time.

Compounding interest is often described as earning “interest on interest” and it can significantly increase the growth of savings over time. Even small amounts can grow into substantial sums because the interest earned accumulates and earns more interest, given enough time.

There is also the ability to take greater risks with potentially higher returns. 

With longer time horizons until retirement, there are more recovery periods from the volatility associated with higher-risk investments, such as stocks. This can lead to higher growth rates over the long term compared to safer investments like bonds.

The problem, however, is that when most are in their 20s, they either do not think about or want to bother with retirement, or worse, there is little left over to start one. When 40 rolls around, the time before entering retirement has been cut in half, or greatly reduced.

If You’re Over 40 With Little Or No Retirement, Here Is What To Do

First and foremost, it’s not the end of the world. Many people start saving for retirement later in life and still retire comfortably. This can have some advantages.

One of the key reasons why it’s not too late to start saving after 40 is the benefit of increased earning potential. 

Typically, those of us in our 40s and 50s are at peak earning years. This often comes with higher salaries and potentially more disposable income to allocate towards retirement savings. Compared to earlier in your career, you might now be in a better position to save a larger portion of your income. Many in their 20s do not have enough income to start retirement savings.

Starting to save after 40 can also lead to more disciplined financial habits. 

Having a shorter time frame can instill a sense of urgency and focus, making you more likely to stick to a savings plan and make more conscious spending decisions. 

Additionally, individuals over 40 often have a clearer picture of what retirement looks like, which can help in crafting a more targeted saving and investment strategy.

Starting later can also be an advantage because you might have fewer financial obligations than younger savers, such as lower education expenses for children or a fully paid-off mortgage. This can allow you to allocate funds to retirement that would have otherwise gone to these expenses.

The key, however, is to start as soon as possible, stay consistent, and seek professional advice to make the most informed decisions.

You may want to read another article I wrote that goes over the Psychology of Money, a book written by Morgan House.

There’s a great section on savings and why it may be more important than investments.

Small Amounts Can Have Huge Returns

Small investments can grow dramatically through compounding interest.

As daunting and overwhelming money issues can feel, especially for retirement, you’d be surprised how much you can get from not that much invested.

The principle of incremental progress, where small, consistent actions yield significant long-term benefits, is evident in various aspects of life, particularly in forming habits and financial investments like compounding interest.

Consider for a moment, personal development. The formation of habits through small, manageable steps is a powerful way to achieve long-term success. 

Here’s an example.

The habit of reading just 10 pages of a book every day equates to reading about 3,650 pages per year, or roughly 12-15 books, depending on their length. This simple habit sustained over time, can profoundly expand your knowledge and understanding across multiple disciplines.

When it comes to finances, relatively small amounts of money, invested wisely and consistently, can grow significantly.

Compounding interest is the process where the interest earned on an investment is reinvested to generate additional interest, resulting in exponential growth over time. 

For example, if you, at the age of 40, invest $5,000 annually in a retirement savings account, by 65 you would have $125,000 ($5,000 x 25 years). 

However, add an average 7% annual return, compounded for 25 years, by the age of 65, you would have instead $338,000. 

The underlying idea in both scenarios is the same: small, consistent actions, whether they are daily habits or annual financial contributions, can leverage time as a transformative factor, leading to excellent outcomes.

It’s never too late to start making small changes.

If you would like more details on compounding interest, check out this article I wrote called, How To Get Rich After 40.

Savings Can Do More Than You Think

It's never too late to start saving.

I’m sure you’ve heard that money sitting in the bank is technically always losing value, as the rate of inflation (increase in overall goods and services pricing) is constantly rising. 

I recently finished reading The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, by Morgan Housel. It gave me a slightly different perspective you may want to consider. 

I wrote an article about what I read that you can read here, if you want more details.

In summary, the author heavily praises consistent savings, often over long-term investments.

Granted, much of his justification stemmed from the overall goals of being comfortable and stress-free, thus not tied to the fluctuations of the market. It’s his opinion that most people would rather feel happy and good, knowing there is ample money in the bank to cover expenses.

Housel refers to this as the Rational vs Reasonable dilemma.

It’s rational to methodically invest your earned money into historically supported investments, like the S&P 500. The average return since its inception in 1926 has been 10% annually, compounded each year.

However, we as human beings aren’t rational creatures.

The S&P 500 has had some lean years. In 2018, the Index dropped 6%, and again in 2022, another 19% loss. Depending on where one would be in their life at the time, the decline in value that year could mean delaying retirement or altering other personal plans.

This creates stress and unhappiness.

The author argues that while it may not be rational, it’s reasonable to have a healthy savings account, arguably more so than necessarily being heavily invested. 

While investing offers the potential for high returns, it comes with volatility and risks that may do more harm emotionally and mentally than it is worth. Savings, on the other hand, aligns with feelings of control and perceived certainty.

Here are a few reasons why.

Unforeseeable Events

As we age, the likelihood of unforeseen expenses increases—be it healthcare costs, urgent home repairs, or the need to support family members.

Savings accounts provide immediate access to funds when needed, unlike many investments which can require time to sell without loss, particularly during market downturns. 

You also avoid capital gains tax from selling stocks. The tax can range between 15% to 20% on average. The remaining gains are also subject to income tax.

Accessible And Safe Money

Funds deposited in savings accounts are insured by the government up to a certain amount ($250,000 per depositor per institution in the U.S. through the FDIC). 

Yes, we’ve all heard about “bank runs”, resulting in some banking institutions going insolvent. However, it’s very rare and can be mitigated by selecting a major bank with large assets. 

This article by Forbes lists the largest banks in the United States, as of the date of this article.

Some Banks Offer Interest On Savings

Some banks offer high interest rates on deposited funds.

There are banking institutions that offer interest rates on your money just remaining in your account. 

I’m not referring to Certificates of Deposit (CD) or Bonds, which certainly have their place.

Those financial instruments require your funds to be committed for the offering duration. For example, a CD may offer 3% interest for 1 year, but it requires your money be locked for 12 months.

Those funds are essentially inaccessible without paying fees or losing gained interest.

High-yield Yield Interest Accounts are, instead, what you may want to consider. 

These accounts offer higher interest rates compared to traditional savings accounts, sometimes comparable to returns on bonds or other low-risk investments, but without locking in your money. This means you can still earn a passive income on your savings while having the flexibility to withdraw or transfer funds without penalties.

Not every bank offers these kinds of accounts, but several solid, large-asset ones do.

Now, there is a downside to these kinds of accounts.

The interest rate can change at any time. The bank, for example, may offer an annual return of 4.5%, but drop to 4% or less before the year concludes. 

Regardless, having access to the money in your savings and still earning interest, is worth looking into, especially if you’re over 40. 

Time Is More Valuable Than Money And Stuff

Time is often said to be our most precious resource, more valuable than money or material possessions. Money can be earned, saved, and spent.

However, time can only be spent.

Once a moment passes, it cannot be reclaimed, no matter how much money you may have. This impermanence makes time inherently valuable and a measure of true wealth.

In modern society, work and obligations often dictate how time is allocated. The ability to manage your schedule is a significant form of freedom. 

The ultimate goal for many isn’t to accumulate vast sums of money but rather to reach a point where financial stability affords us the luxury of choosing how to spend our time. 

When we no longer have to work solely to meet basic needs, we gain the freedom to pursue passions, relax, and be more with loved ones.

This is all without the constant pressure of financial constraints. While money itself is a tool, it is most valuable when it serves to enhance our ability to enjoy and make the most out of every moment we have. 

This is why many people strive for a financial situation that allows them to feel in control of how they spend their days—because, in the end, feeling in command of your time is the clearest indication of true wealth.

Now here is the “million dollar” question. How would you like to spend your time?

It’s About How You Choose To Live

What kind of life do you want to live?

If you’re over 40 and feel that perhaps your retirement account isn’t quite what you hoped it would be, or perhaps the journey looks too difficult and straining, I have another thought for you.

It’s less about the amount of money in your accounts, and more about how you live.

Choosing a lifestyle that matches your actual needs and desires can drastically influence your enjoyment of retirement.

For instance, if someone wants a high-end, luxurious lifestyle, this comes with its own set of challenges. There is a significant amount of work and, often, elevated levels of stress. It can also mean sacrificing peace and health to sustain an expensive way of life. 

While there’s nothing inherently wrong with seeking luxury, it’s important to consider whether the benefits outweigh the costs, such as potential impacts on your well-being and personal relationships.

At the same time, some people may enjoy this kind of adventure, and if you’re one of those, then please, by all means, go for it.

As for me and the many others I’ve spoken with, there is something wonderfully satisfying about simplicity. 

Often, less truly is more.

Enjoying life’s simple pleasures—like taking a leisurely walk in a nearby park, savoring a well-cooked meal at home, or enjoying a favorite movie or book—can provide immense satisfaction without the hefty price tag. 

A study published in 2020 demonstrated that most people prefer a stress-free retirement, enjoying simpler things rather than the cost of luxury.

Mind Your Environment

Your environment makes a difference.

Concluding what to do can require time and critical thinking. It’s something that also may evolve. 

Having the right environment can help in making informed decisions. 

A tranquil and orderly space can allow for clearer thinking and reduce the stress that often comes with major life changes.

The significance of a well-balanced environment is often underestimated when planning for the future. Yet, research and traditional practices alike suggest that our surroundings can deeply influence our mental clarity, emotional balance, and decision-making processes. 

I’ve written extensively about what a harmonious environment can do for you, of which you can read here.

One way to conducive surroundings is through Feng Shui.

Feng Shui focuses on maximizing living spaces. By arranging furniture, choosing appropriate colors, and incorporating natural elements, you can create a space that supports insight and contemplation.

For instance, a home office used for retirement planning should ideally be decorated with objects, signage, and artwork that encourage abundant thinking and intelligent conclusions.

Similarly, decluttering clears the physical space of your environment, which can also clear your mind. 

The process of decluttering not only simplifies your living area but also your thought processes. It eliminates distractions that cloud your judgment and frees up mental space to focus on the decisions at hand. Decluttering can also be particularly therapeutic as it involves letting go of past baggage, thus symbolically preparing you to embrace future possibilities without unnecessary emotional and physical clutter.

If you’d like to read more about decluttering, here is another article I wrote about the subject.

Environments can help or hinder you. When making important decisions such as how you’d like to retire, it only makes sense that your environment be molded to assist you.

The beauty of also creating and maintaining a healthy and harmonious environment are the fringe benefits…order, peace, relaxation, and a welcoming presence. Watch how your sleep and health improve as well.

Here Is How To Begin A Retirement or Investment Account

Everyone can open their own investment or retirement account.

Please note, this is not financial advice. It’s generally recommended you consider meeting with a licensed financial advisor.

That being said, here is how it usually goes in creating a retirement or investment account.

Select The Right Retirement And Savings Account

You’ll want to choose the type of retirement account that best suits your needs. 

Common types include 401(k) plans, often offered through employers, and Individual Retirement Accounts (IRAs), which you can open on your own. Each type has its own set of rules regarding contributions, taxes, and withdrawals.

401(k) Plans: These accounts are great if your employer offers a matching contribution, essentially giving you free money as an incentive to save. Contribution limits are generally higher than IRAs.

Investopedia does a great job explaining 401(k) plans.

IRAs (Traditional and Roth): With IRAs, you decide where to open your account, giving you control over the investments you choose. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free growth, meaning you won’t pay taxes on withdrawals in retirement.

Here is another article from Investopedia on IRAs.

High-Yield Savings Account: This is subject to what a bank with a regular checking and or savings account will offer in annual interest.

Once again, Investopedia provides an excellent description of how high-yield savings accounts work.

Here are also a few potential banks to get you started.

Please note, that these are as of the date of this article, so the information may be subject to change.

1. Ally Bank: Known for its user-friendly online interface and competitive rates, Ally offers one of the top high-yield savings accounts with no monthly maintenance fees.

2. Marcus by Goldman Sachs: They offer a high-yield online savings account with rates higher than the national average, no fees, and no minimum deposit requirement.

3. American Express National Bank: Offers a high-yield savings account with competitive interest rates, no minimums, and no monthly fees.

4. Discover Bank: Besides being a leader in credit cards, Discover offers a high-yield savings account with no minimum deposit and no fees.

5. Synchrony Bank: This online bank offers a high-yield savings account with competitive rates, ATM access, and no minimum balance requirement.

Setting Up an Investment Account

This might be a brokerage account where you can buy stocks, bonds, mutual funds, and other types of investments. Here’s how to get started.

1. Select a Brokerage: Choose a brokerage firm that aligns with your investment goals and learning style. Some offer extensive educational resources for new investors, while others are better for those who have a bit of experience.

Check with whatever bank you’re currently with if they offer a brokerage account. Most are free of trading fees these days.

2. Open Your Account: Typically, you can set up an account online in just a few minutes. You’ll need to provide some personal information, including your social security number and details about your employment.

3. Deposit Trading Funds: Decide how much money you want to start with. Don’t forget, that even a small amount can grow over time thanks to the power of compound interest.

4. Choose Your Investments: It’s up to you how much you’ll want to manage this. Financial Advisors often handle this role, but usually require a minimum of at least $25,000. 

However, you don’t need that much to start trading. You can start with as little as $100 and take a simple long position (just buy a stock and don’t sell it for a long period, such as 10 years or more). 

Investing in exchange-traded funds (ETFs), such as those that track the S&P 500 Index, is often recommended as an effective starting point.

I really like S&P 500 Index ETFs as they offer broad market exposure, diversification, and lower risk relative to individual stock investments. You automatically gain a piece of performance from 500 of the largest U.S. companies across various industries. 

Historically, S&P 500 ETFs have often outperformed actively managed funds.

According to the SPIVA U.S. Scorecard, the index did better than a significant majority of active fund managers. Over the 15-year period ending in December 2020, 92.9% of large-cap fund managers failed to outperform the S&P 500.

Start Now, Be Consistent And Don’t Worry

No matter where you may be, the most important choice is just choosing to start.

It’s never too late or too early to begin setting aside a portion of your income, however small.

The key is consistency.

Compounding in action, whether it’s savings or investments, regular contributions can accumulate over time. You’d be surprised what you can amass in just 15 years. 

Many find that a simpler life leads to just as much happiness, if not more, as a luxurious one. It also certainly requires less capital to sustain.

Deciding how you want to retire doesn’t just help with financial planning; it also gives you something to strive for.

Life is unpredictable, and our needs and desires can shift. That’s OK. 

What’s important is not the path you initially choose but that you start taking action towards one.

Until the next time, cheers.

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