At one point in history, you've probably read a statistic that goes something like this: "If you invest $10,000 today and assume a 10% return, in 50 years you'll be a gajillionaire!"
OK, so you'd actually only be a millionaire, but you get the point.
Fuzzy math
So what's stopping you? Well, as I see it, two things:
- You don't have that much money to invest because you need it for other things -- paying off credit card debt, student loans, cars, mortgages, child care, or cigarette boats.
- You didn't start investing at age 15 to let your investment compound those 50 years, so you think it's now too late.
Don't fret
You may have heard that "it's never too early to plan for retirement." (I think that's the tagline of a TV commercial.) I'd argue that it's never too late to plan for retirement, as long as you devise a smart game plan and execute it.
According to the Centers for Disease Control, the average American lives to be nearly 80 years old. So if you're 40, 50, 60, or even 70, you still have plenty of time to grow your nest egg for your golden years -- even if you're already in them.
To get started on the path toward retirement, take a cue from the world of tennis -- yes, tennis.
The Punisher's plan
I've followed Andre Agassi's career since he was a long-haired, image-is-everything, spitting-at-the-umpire teenager. I watched in awe as he shocked crowds with his unmatched returns and groundstrokes, only to fall just shy of greatness.
Calm down, all you Agassi fans. I know Agassi won a slew of tournaments, and he was even No. 1 in the world for a brief time. But compared with Pete Sampras' spectacular career, Agassi gave you a gnawing feeling that he'd squandered his chances like so many people squander their financial chances in the invincibility of their youth.
In his late 20s, he fell all the way to No. 141 in the world rankings. Ouch.
Don't call it a comeback
And then came the game plan. Agassi didn't worry about all the opportunities he'd squandered in the past. He rededicated himself to the sport. And then the old man went out and won five of his eight career Grand Slam titles.
He's not done yet, and neither are you.
Yes, this does have to do with retirement
If you feel like the door to retirement planning has closed on you, take a page from Agassi and rededicate yourself. It's not too late, but you must start now.
First, track all your expenses for a few months to see what fat you can cut out of your budget. The more money you can stash away, the better.
If your employer-sponsored 401(k) plan has a company match, sign up. Immediately. With a 401(k), the money never lines your pocket, so you won't even miss it. And if your company matches a percentage of your contributions, you're essentially getting free cash for your retirement nest egg.
For non-401(k) funds, map out your time horizon and risk level. If retirement is near, play it safe with a mix of stocks and bonds -- emphasis on bonds. Take advantage of the income of dividend-paying stocks. And make sure you have emergency cash in an easy-to-access, high-yielding savings account. (ING Direct's current yield on a savings account is a category-crushing 4.0%.)
Back to where we started
Of course, if you have more time and more tolerance for risk, take a look at the stock market. The market's historical average rate of return -- 10% -- will let your money compound (remember to reinvest dividends), even if you don't have 50 years until you hug your co-workers and move the camper to Florida.
How do you get 10%? A good place to start is index funds, which cost you little and put the entire market to work in your portfolio. Vanguard Total Stock Market (FUND:VTSMX) and Fidelity Spartan Total Market Index (FUND:FSTMX) both hold more than 3,500 stocks and ding you just 0.19% and 0.17%, respectively. Exchange-traded fund SPDRs (AMEX:SPY) cost just 0.11% while tracking the S&P 500 (plus brokerage fees).
If you want to be more aggressive, you can look to individual stocks to round out the picture. One historical outperformer is General Electric (NYSE:GE), which has paid a dividend every year for more than a century and has increased its payout in each of the past 30 years. During the past two decades, GE has had 15.1% compound annual growth.
American Financial Realty (NYSE:AFR), a real estate investment trust with a 9.4% yield, is a stock I hold in my portfolio, and Fool dividend guru Mathew Emmert recently suggested that it's a stock for your golden years.
Take control of the retirement game
Does anything from this list strike your fancy?
- Strategies for asset allocation (stocks vs. bonds vs. real estate and so on).
- Inflation-related techniques.
- Specific stock, fund, and bond recommendations.
- Tax strategies.
If you answered yes (and I'm not sure anyone could answer no), I encourage you to check out the Fool's comprehensive retirement service, Rule Your Retirement. Editor Robert Brokamp takes you step by step through a Brad Gilbert-style lesson on how to control your own retirement destiny. A free 30-day trial to the service gives you full privileges -- the current issue, all back issues, retirement how-to guides and calculators, and the world-class members-only discussion boards.
The next time you think it's too late to have a superstar retirement, remember Andre Agassi. (And Andre, if you're reading this, drop me an email ... your subscription's on me.)
Click here to claim your free one-month guest pass to Rule Your Retirement.
Anand Chokkavelu owns a $30 racket and a $2 backhand. He owns shares of American Financial Realty, which is a Motley Fool Income Investor recommendation. The Fool has adisclosure policy.
