If Retiring At 65 Is Your Goal Suze Orman Has Some Direct Advice

As someone who’s reported on the economy for 30 years, I rarely read anything famous financial gurus have to say about personal finances. My reason for this is simple: so much of it is condescending, talking down to the people they claim to be helping. One of the few exceptions to my rule is Suze Orman. While I don’t agree with everything Orman suggests, she hits the nail on the head often enough for me to want to hear her out.

For example, Orman says if you dream of being a millionaire by age 65, you should start investing as soon as possible. I realize that many people don’t believe they can afford to invest for their golden years (and I totally get that), but here’s the thing: Even if early investing isn’t possible due to life challenges, late starters can still plan a solid retirement by calculating benefits, budgeting, and boosting income through part-time work.

The power of compounding interest

Orman’s point is that time is your friend when it comes to investing, and that’s all due to the power of compounding interest. This table gives you an idea of how much you’d need to invest each month to end up with $1 million by 65. You’ll notice how much less a person who begins investing at age 25 will need to come up with monthly than a 55-year-old. This scenario assumes an average annual return of 10%.

Why it works

Have you ever noticed how difficult it can be to pay off a credit card? That’s because credit card companies charge you compound interest. When you invest, you earn compound interest instead of paying it. In fact, compound interest helps explain why rich people stay rich. Here’s a simple explanation of how compound interest works in your favor:

• You begin by investing a certain amount of money, called principal.
• Over time, you earn interest on that principal.
• The interest you earn is added to your principal balance.
• As time passes, you earn more interest on your principal – meaning you’re paid interest on interest you’ve already earned.

Think of it like a snowball, growing larger and larger (and at a faster pace) as it rolls down the hill. It’s not so much fun when you’re paying compound interest, but it sure feels good when you’re earning it.

Resisting the temptation to give up

If you took one look at the table and felt discouraged, don’t. While investing early is ideal, it’s not always realistic. Job loss, illness, and other issues can get in the way. Even if you’re worried you won’t be able to hit $1 million by age 65, don’t throw in the towel. 

As long as you’re not retiring tomorrow, you have time to plan. These steps should help you get started:

• Look at the overall picture: Calculate how much you expect to receive in Social Security, pension, or other retirement benefits. If possible, delay claiming Social Security as long as possible to maximize your monthly check. Don’t forget to add other income-generating assets, like rental property and life insurance annuities.
• Create a post-retirement budget: Now is a good time to figure out how much you’ll need to cover your retirement expenses. It’s also a good time to begin paying off debt.
• Increase your current income: Whether you have five or 25 years before you reach age 65, consider freelance or part-time work to supplement your current income. Not only will this money help you pay down debt at a faster clip, but it may also provide you with a little more to invest each month.

Is there something you dream of doing, a job you could only take on after retiring from your “real job?” For example, my husband has always dreamed of working at a zoo in some capacity, and a business-owning friend recently admitted that she dreams of working in customer service at a grocery store after she retires. 

Suze Orman is right. The earlier you begin investing, the better the odds you’ll hit $1 million by age 65. However, if that’s not in the cards for you, it doesn’t mean you can’t enjoy a great retirement. It only means you’ll need to come up with an alternative plan. Visting with a financial planner is a good way to sort out your situation and devise a plan that works.