Retiring a millionaire may sound daunting for those who struggle to save, but with the right strategies, socking away seven figures is definitely feasible. Saving money can start today. Building up your finances and retiring with a comfortable amount of money in the bank can be possible if you consider these simple tips. Make the most out from your savings.
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Set Your Goal & Start Saving
If you didn’t save much in your 20s, there’s no need to worry. Simply conduct a bit of research, set realistic goals based on your salary and financial obligations, and develop a reasonable budget. Pay yourself a small “salary” each month to develop healthy saving habits. If you did start saving early, then simply continue on your current path. Be realistic about how much house you can afford, and avoid indulging in frequent lavish spending.
Make sure to put your million-dollar retirement goal in perspective. If you have been saving $400 per month since you were 25, and you plan to continue doing so until you are 65, then you will have $1 million in the bank by the time you retire. Conversely, if you didn’t start saving until the age of 35, you will need to put away slightly more than $10,000 per year to enjoy $1 million in retirement. Furthermore, if you’re in your 40s or 50s and have yet to begin saving, you will need to set aside even more money each year.
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Take Advantage of Employer Contributions
Does your employer offer a 401(k) match? If they agree to contribute a certain amount to your retirement savings based on your own annual contribution, you can save additional funds that will help grow your savings by retirement.
A word to frequent job hoppers — make sure you get to keep the match when you leave your current role. Some companies prohibit former employees from taking the match with them, depending on how long they have been with the organization. If you risk losing a significant amount of money by changing jobs, try to negotiate a sign-out bonus to compensate for the loss.
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Use Tax Breaks to Grow Your Retirement Savings
When you put money in your 401(k), you have less income to spend. As a result, you pay less tax at the end of each year — and income tax won’t be due on your retirement contribution until you withdraw the funds. Deferred tax payments can lead to major savings, and help you sock away more money for retirement.
However, it’s important to understand the math involved. With the exception of after-tax Roth IRAs, you need to save more than $1 million in a retirement account to have seven figures to spend as a retiree. This is because your retirement savings will be taxed upon withdrawal.
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Avoid Retirement Account Penalties
Consumers face a 10% early-withdrawal penalty if they access the funds in a traditional IRA before the age of 59.5, and a 50% penalty if they do not begin taking traditional IRA withdrawals by the age of 70.5.
Keep these numbers in mind, and let them inform the way you spend — or save — your retirement funds. The right strategies will help you in your effort to save $1 million by the time you retire. In addition, avoid incurring any taxes or penalties from rolling funds over from a 401(k) to an IRA, or to a new 401(k) when you accept a new job.
When it comes to your portfolio, note that your investments will accumulate faster if you reduce the fees deducted from your returns. Try to get your desired allocation for the lowest possible amount, and evaluate how much you need to save each year to have $1 million in retirement.