Three Easy Steps to Retiring a Millionaire with Minimal Effort
Monica Jackson
Published Oct 19, 2023
If you want to retire a millionaire, it can be easier than you think. In fact, financial experts advise that putting away a healthy amount for retirement is imperative for lowering stress during your golden years. According to Charles Schwab, the average person should accrue around $2.1 million in savings to retire in comfort. Fortunately, you do not need to have a six-figure salary or exorbitant investments to harness great savings. By following three simple steps, you can use an average salary to reach millionaire status.
The first step in investing as an employee is to take advantage of employer-matching 401(k) contributions. Once you confirm that your employer participates in the program, all you need to do is to invest money into your 401(k) account to receive a bonus amount from the employer.
Most employers match 401(k) contributions up to a portion of an employee's salary. According to the Bureau of Labor Statistics (BLS), the typical employer match is 3.5% of an average salary. Although this figure may seem small at first, it adds up over time. For example, if you earn $45,000 a year and your employer agrees to match 3.5% of your wages, then you can receive $1,575 in annual matching contributions.
Furthermore, an average salary with 401(k) investments earning a 10% average annual return can amount to $450,000 after 35 years. And that amount is the employee match - you can potentially have double once you factor in all of your 401(k) contributions during that time.
Consistency is key to retiring a millionaire through savings. Without putting your contributions on autopilot, it is far too easy to redirect funds toward immediate expenses. By enrolling in a program that transfers a set amount of money directly from your paycheck, you can automatically accrue funds to live securely into the future.
Automatic your savings plan might seem like a sacrifice at first, but it is actually more empowering. Most plans deduct these automatic enrollment contributions from your pre-tax earnings. This means that you do not have to pay taxes on these work-related 401(k) contributions. Instead of handing over all of your hard-earned money in the form of taxes, maximize your automatic contributions to achieve the retirement you deserve.
If you have any extra income after paying your bills and making the automatic contribution to ensure your employer's 3.5% match, you can also consider setting up an additional Roth IRA for your after-tax income. This separate IRA can help diversify your portfolio and feel more confident about your future. You might not be able to take a tax deduction for this separate type of IRA, but you can still contribute as much as you want up to the maximum annual limit.
The final step in building a million-dollar retirement fund is to start investing now. Although many people feel discouraged if they have not started investing by their 40s or 50s, it is never too late to start. You would just need to strategize differently.
For example, an investor who is 35 can build an investment profile with a decent 8% annual return and save $125 per week. At this rate, the investor can save around $1 million by age 70. Similarly, an investor who is 40 can create the same investment profile of 8% yearly return, but this person would need to save around $200 per week to achieve the same results.
You might not be able to go back in time and start investing as a teenager, but you can make the most of your income now by investing it wisely. For this reason, some investors increase their available investment money by paying off debt or starting a side hustle. According to Veribanc, the average family can save around $535 a month in interest payments by paying off debt. If eliminating debt is not an immediate possibility, consider using a side hustle to earn the same amount. By using the extra funds to enhance your investment profile, you can create the retirement fund needed for a happy future.
Retiring as a millionaire might seem intimidating at first, but it can also be an achievable goal. By using three simple steps to supercharge your savings, you can secure the million to live your golden years with pride.
Always Use Employer-Matching 401(k) Contributions
The first step in investing as an employee is to take advantage of employer-matching 401(k) contributions. Once you confirm that your employer participates in the program, all you need to do is to invest money into your 401(k) account to receive a bonus amount from the employer.
Most employers match 401(k) contributions up to a portion of an employee's salary. According to the Bureau of Labor Statistics (BLS), the typical employer match is 3.5% of an average salary. Although this figure may seem small at first, it adds up over time. For example, if you earn $45,000 a year and your employer agrees to match 3.5% of your wages, then you can receive $1,575 in annual matching contributions.
Furthermore, an average salary with 401(k) investments earning a 10% average annual return can amount to $450,000 after 35 years. And that amount is the employee match - you can potentially have double once you factor in all of your 401(k) contributions during that time.
Automate Your Retirement Fund Contributions
Consistency is key to retiring a millionaire through savings. Without putting your contributions on autopilot, it is far too easy to redirect funds toward immediate expenses. By enrolling in a program that transfers a set amount of money directly from your paycheck, you can automatically accrue funds to live securely into the future.
Automatic your savings plan might seem like a sacrifice at first, but it is actually more empowering. Most plans deduct these automatic enrollment contributions from your pre-tax earnings. This means that you do not have to pay taxes on these work-related 401(k) contributions. Instead of handing over all of your hard-earned money in the form of taxes, maximize your automatic contributions to achieve the retirement you deserve.
If you have any extra income after paying your bills and making the automatic contribution to ensure your employer's 3.5% match, you can also consider setting up an additional Roth IRA for your after-tax income. This separate IRA can help diversify your portfolio and feel more confident about your future. You might not be able to take a tax deduction for this separate type of IRA, but you can still contribute as much as you want up to the maximum annual limit.
Start Investing Now (No Matter Your Age)
The final step in building a million-dollar retirement fund is to start investing now. Although many people feel discouraged if they have not started investing by their 40s or 50s, it is never too late to start. You would just need to strategize differently.
For example, an investor who is 35 can build an investment profile with a decent 8% annual return and save $125 per week. At this rate, the investor can save around $1 million by age 70. Similarly, an investor who is 40 can create the same investment profile of 8% yearly return, but this person would need to save around $200 per week to achieve the same results.
You might not be able to go back in time and start investing as a teenager, but you can make the most of your income now by investing it wisely. For this reason, some investors increase their available investment money by paying off debt or starting a side hustle. According to Veribanc, the average family can save around $535 a month in interest payments by paying off debt. If eliminating debt is not an immediate possibility, consider using a side hustle to earn the same amount. By using the extra funds to enhance your investment profile, you can create the retirement fund needed for a happy future.
Retiring as a millionaire might seem intimidating at first, but it can also be an achievable goal. By using three simple steps to supercharge your savings, you can secure the million to live your golden years with pride.
