You can’t just speak being a millionaire into existence. You need to create a plan and follow through. There are 18.6 million people in the United States who have at least 7 figures in their bank account. If you play your cards right, you may be able to join them. Here’s how to save $1 million for retirement.
Crunch the numbers to see how much to save monthly
It’s easier to achieve your goals when you break it down to smaller pieces. Review your bank accounts to see how much money you currently have saved. Then use a financial calculator to determine how much you’ll need to set aside each month to save $1 million for retirement.
Start saving as early as possible
A TD Ameritrade survey found that only 38 percent of people say they started saving/investing early. The benefit of starting young is that you can contribute a smaller amount and still end up with a nice cushion because your money has more time to grow. The longer you delay saving for retirement, the more you’ll need to contribute each month. It also becomes a lot harder to save money once you get married, buy a house and start having kids. So, do it now while you have fewer financial responsibilities.
Enroll in your employer’s 401k plan
A 401k is a great way to save for retirement because your contributions are automatically deducted from your paycheck. With minimal effort, you’ll be increasing your savings and reducing your taxable income. Plus, most employers give your account a boost by matching a portion of your contributions, usually around 3 percent. It’s free money so make sure you’re contributing enough to receive the full match.
Keep your expenses low
Even if you get a raise or find a higher paying job, stick to the essentials and live as frugally as possible. Do whatever it takes to keep your expenses low. You can clip coupons, earn cash back when you shop, or bring your lunch to work. Living below your means will allow you to avoid debt and save a lot more money in a shorter period.
Build an emergency fund
As the Coronavirus has taught many of us, life can change in an instant. The best way to prepare for anything that may come your way is to have an emergency fund. Essentially, you want to have a cushion of at least 6 months of living expenses. Having cash readily available will prevent you from tapping your retirement accounts out of desperation. Many people use their tax refund to pad their savings. If you still haven’t filed, start your return now with ezTaxReturn.com. It’s the fastest and easiest way to get the biggest possible refund, guaranteed.
Max out your retirement accounts
Only one in five Americans consistently max out their 401k. Try to be more like them if you want to save $1 million for retirement. Maxing out your 401k can reduce your taxable income by up to $19,500. Even more if you’re aged 50 or older. If you prefer to open a Roth IRA, you can only contribute up to $6,000 to the account. The major perk is that your withdrawals will be tax-free once you reach age 59 ½.
Start making catch-up contributions once you turn 50
Once you turn age 50, the government has a special treat for you. Many tax-advantaged accounts allow you to make catch-up contributions so you can put your retirement savings in overdrive. For a 401k, you can make catch-up contributions up to $6,500. If you have a Roth IRA, you can contribute an extra $1,000 per year to the account.
Invest in stocks
Investing in stocks is risky, but they tend to outperform bonds over time. Therefore, it’s a better investment. The old rule of thumb was to subtract your age from 100. The result is the percentage of your portfolio to keep in stocks. However, since people are living longer, they need their money to last longer as well. Some financial experts have updated the rule by suggesting you do 120 minus your age instead.
