I stumbled upon an interesting Web page the other day: www.globalrichlist.com. Go there, plug in your annual income, designate your currency, click "show me the money," and bam -- you'll learn where you stand in the world. First, though, if you're wondering where you stand in the United States, know that the recent median household income is a little less than $44,000.
So I typed in a representative American income of $50,000 and learned that out of more than 6 billion people on earth, someone earning $50,000 would be the 59,029,289th richest person in the world. That's enough to place him or her in the top 1% of the richest people in the world. Imagine that -- you're earning a typical U.S. income, and it puts you among the top 1% globally.
Not necessarily great
Since I often like to remind readers (and myself) that half of the world lives on less than $2 or $3 per day, you might expect me to argue that those earning $50,000 are rich. Well, yes and no. It's a respectable income, to be sure, but your situation matters, too. If you're earning $50,000 and you owe $60,000 in credit card debt, with average interest rates of 20%, that means you owe $12,000 in interest alone each year. If you have no savings for retirement -- or even if you're 50 years old and have $50,000 saved -- you're not in such great shape, despite being in that top 1%. If you support 11 dependents ... you get the picture.
But not so bad, either
Still, even if you feel like a financial shrimp, there's hope. Small fortunes can become big ones, as long as they have time to grow. If you have debt, pay it off. If you don't have a brokerage account, open one and start saving and investing. Here's how your money might grow:
- Invest $6,000 per year, earning 10% per year on average, and in about 30 years, you'll have amassed a million dollars.
- Invest $10,000 per year, earning 10% per year on average, and in about 25 years, you'll have amassed a million dollars.
What will a million dollars do for you? Well, according to our Rule Your Retirement newsletter service, in order to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement. Four percent of a million is $40,000 -- draw your own conclusions about how well that would serve you in retirement. You can always aim for more by investing more -- and remember that the sooner you invest your money, the longer it has to grow.
Now -- why did I use 10% in my examples? Well, 10% per year, on average, is what the stock market has returned over many decades, so it's a reasonable number to use in your estimates. Still, there's no guarantee that you'll earn 10% in your investing time frame. You'll likely earn more -- or less.
Beat the average
You can try to beat that market average by investing in carefully selected stocks. Alternatively, you might opt for mutual funds. (They're especially suitable for those of us who'd rather not spend great gobs of time studying stocks.)
One popular kind of mutual fund is the target-date fund. Each of those is designed around a specific retirement date, and its investments are chosen with that date in mind. Consider, for example, Vanguard 2025 (VTTVX), for those who plan to retire in 2025. It recently had 79% of its assets in stocks and 21% in bonds, whereas its Vanguard 2045 (VTIVX) counterpart had 90% in stocks and 10% in bonds.
Both of these target Vanguard funds invest in other Vanguard funds. The Vanguard 2025 fund, for example, recently had 63% of its assets in the Vanguard Total Stock Market Index (VTSMX) and 3% in Vanguard Emerging Markets Stock Index (VEIEX) -- giving you both domestic and foreign equity exposure. While the former has shareholders invested in the likes of ExxonMobil
By reading up and planning well, you can set yourself up for as cushy a retirement as possible. Luckily, our Rule Your Retirement newsletter service, edited by Robert Brokamp, can help you on that front. A free one-month trial to the newsletter will give you access to all past issues, including a host of "Success Stories" profiling people who retired early and are willing to share their strategies. Robert also regularly tackles critical topics such as asset allocation, tax strategies, and retirement accounts, while offering recommendations of promising stocks and funds from various experts. Just click here for more information.
Here's to staying well above average -- and maybe even becoming the 4,522,673rd richest person in the world!