The best advice for retiring rich is to start saving early. For some Americans approaching retirement age, however, not only is retiring with tons of cash out of the question, but there’s an increasing worry they won’t have enough saved to actually retire.
Thankfully, there are ways to catch up on lost time and money.
On a recent episode of her “So Money” podcast, financial planner Farnoosh Torabi asks her guest Ric Edelman, best-selling author and CEO of Edelman Financial Services, his best advice for Americans who feel unprepared to retire.
For starters, “you can contribute more to your IRA and your retirement plan at work than people younger than you are able,” Edelman said. And “you need to reduce the expenses as much as you can now to free up as much cash as possible that you can use to save and invest.”
Edelman also says that there are two big things you should be doing to make up for lost time that “most people tend to ignore.”
1. Optimise your investments
“Number one is to make sure that your money is invested in a way that gives you the best potential for earning the returns offered by the financial markets,” Edelman advises. “If you are going to throw all of your hard-earned savings into bank accounts where it is earning zero point nothing in today’s environment, I don’t care how hard you work. I don’t care how much money you save. You’re never going to be able to accumulate enough wealth.
“You’ve got to have your pennies earning pennies. It’s not enough that you save pennies, you have to get the pennies earning pennies through compound interest, compound growth and that means you’ve got to invest where you have the potential to earn six, seven, eight, 9% per year. Earning zero or one or 2% a year isn’t going to cut it,” he said.
2. Create multiple streams of (easy) income
“The second thing you need to do is look for innovative, unique ways that you can earn more money than you were and that’s never been easier thanks to exponential technologies and the internet,” Edelman said.
“You can do all kinds of things to make money on the side … Everything from renting a room in your house through Airbnb to driving your car to make money on Uber to engaging in a wide variety of business activities that the websites, tens of thousands of them on the internet will help you do,” he said.
“[Y]ou can make money loaning your lawn mower and power tools to neighbours, where you can buy returned goods from retailers and re-sell them on eBay,” Edelman said. “The list is virtually endless and you can take some of your down time, as you wish, to generate a few extra hundred bucks a month, which is for many people, a huge amount of money to make a big difference in their ability to save for the future.”