If you’re nearing retirement, you’re probably reviewing your accounts to see if you have enough money to keep you going through your senior year.
The numbers can be a harsh reality check, but don’t beat yourself up if you don’t feel prepared for the days ahead. If you’re falling short of your retirement goals or think you’ll need more than you planned, here are some strategies and tips that can help you build your savings and get closer to the million-dollar mark.
It may not be impossible to retire as a millionaire if you are over 50, but it will take a lot of work. He’ll have to consider putting away more money, extending his retirement timeline, and making use of all the accounts that can help him get there. He is willing to work the numbers and unravel his chances. If you’re ready to stick with it, create a master plan, and invest in your growth, your millionaire retirement goals may be within reach.
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start with the numbers
Before you dive into your master plan, it’s important to figure out how much you’ll need, so you can strategically work toward your goal. Here are some numbers to start crunching:
- What is the end goal? What number are you trying to hit? You may need more or less than a million to maintain your lifestyle.
- How old are you and how much time do you have to achieve your goal? Delaying your retirement date will give your investments more time to grow.
- What vehicles will you use to achieve your goals and how much can you contribute to each account? We can see employer-sponsored retirement accounts, IRAs, and taxable brokerage accounts.
Maximize retirement plans in the workplace
As soon as you turn 50, you can save more money in your employer’s retirement plans, such as 401(k), 403(b), or Thrift Savings Plan (TSP) for federal workers. For 2022, you can contribute up to $27,000 to these accounts. Look at your finances and determine how much you can comfortably contribute each year. The more you contribute, the better your chances of reaching $1 million in retirement. You’ll also get tax benefits when you save in these accounts.
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Let’s say you’re 52 years old and contribute about $27,000 to your 401(k) each year for the next 17 years. You’ll have more than $450,000 to invest in assets like index funds or actively managed mutual funds.
The rate of return on your investment will determine how fast your money grows. Although the stock market has generated a 10% annual return over the long term, you can aim for a 5% to 7% annual rate of return should the market underperform over the next 10 years.
You can accumulate more than $775,000 in your 401(k) if you save about $2,220 each month and plan for a 6% average annual investment return. Play around with contribution amounts, annual yield, and retirement time to see how much you can aim for in your 401(k). Remember, your employer-sponsored retirement account is just one vehicle you can use to reach your financial goals.
open IRA accounts
Individual Retirement Accounts (IRAs) are great companions to add to your retirement portfolio. You can choose between a traditional or a Roth IRA. It all depends on when you want to pay taxes and your income for the year.
Let’s say you contribute up to $7,000 to your Roth IRA in 2022. Using the same time horizon, you can accumulate more than $250,000 in your Roth IRA if you contribute the maximum of $7,000 each year and earn an average annual investment return of 9%. .
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A self-directed Roth IRA can bring you closer to returns on your investment if you’re well versed in asset classes beyond the stock market. You can invest in real estate, startups, and other exotic assets using a self-directed IRA.
One of the most attractive features of a Roth IRA is the tax-free benefits. With the aforementioned strategy, you could potentially have a quarter of a million dollars of tax-free money to add to your retirement portfolio.
Save on taxable brokerage accounts
If you want to take the pressure off saving a ton of money in your employer-sponsored retirement plan each year, you can open a taxable brokerage account. There are no limits to how much you can contribute and you have more flexibility to invest in individual stocks. If you are willing to research and discover high-potential investment opportunities, you can earn a higher return. On the other hand, you may not be able to enjoy all of the tax benefits that come from investing in employer-sponsored plans and IRAs.
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