Retire a Millionaire with $35 a Week or a Multimillionaire with $137 a Week
Who wants to be a millionaire or a multimillionaire? Just about everyone. We dream about being a millionaire as if it were impossible. Yet, anyone can retire a millionaire by following a simple plan.
Break It Down
Critical to becoming a millionaire is understanding the concept of compound interest. Compound interest accrues on the initial principal as well as on the accumulated interest from the previous periods. For example, if the principal in your account is $10,000 and the interest earned is $1,000, compound interest would accrue on $11,000. The earlier you start saving, the more compound interest will benefit you.
Suppose you put $35 a week ($5 a day) in a good growth stock mutual fund with an annual rate of return of 10 percent to 12 percent.
In 20 years, you could retire with $116,000 to $151,000
In 30 years, you could retire with $346,000 to $537,000
In 40 years, you could retire with $971,000 to $1.8 million
Or you put $137 a week ($19.57 a day) in a good growth stock mutual fund with an annual rate of return of 10 percent to 12 percent.
In 20 years, you could retire with $454,146 to $593,235
In 30 years, you could retire with $1,355,000 to $2,100,000
In 40 years, you could retire with $3,803,420 to $7,114,520
Don't Have 40 Years to Invest?
While starting to save early is ideal, you can still retire a millionaire even if you start saving later. You adapt the plan to your later start.
Pick Up the Pace
The first thing you do is increase the pace of your savings. For example, if you can save $70 a week, you'd have more than $1 million after 30 years. You could accelerate your savings a little more by working a few side hustles.
Another alternative is to work a few extra years. Most Americans are living longer, so working until age 70 still gives you plenty of years to enjoy retirement. Just adding five more working years can increase your retirement savings substantially.
Pay Off Debt
One thing that prevents saving for retirement is credit cards and other debt. Be frugal. Eat out less, use coupons at the grocery store, and take less expensive vacations, for example. Use the extra money to eliminate your debt. Then put that extra money into your retirement savings. Having less debt in retirement also will make your savings go further.
Four Key Steps to Retire A Millionaire
The plan to retire a millionaire, then, has four key steps.
Get Out of Debt
The interest on credit card debt often exceeds the interest you can earn through a wise retirement investment. Paying off debt allows you to make the most of your income. Once you pay off the debt, invest the money you've been using to pay the debt into a retirement account. You won't miss the money, and your retirement savings will grow.
Invest at least 15% In a Tax-Advantaged Account
A tax-deferred account allows you to avoid paying taxes on the money you put into it until you withdraw it, typically during retirement when your income is lower. Many employers offer tax-deferred retirement savings accounts, such as 401(k)s or 403(b)s. If your employer offers this benefit, take advantage of it. In many cases, the organization will match your contributions, which allows them to grow faster.
If your employer doesn't offer a tax-advantaged account, you can start an IRA yourself. IRAs are of two main types: traditional IRAs or Roth IRAs. Traditional IRAs let you defer paying taxes on the contributions. Roth IRAs let you defer paying taxes on the interest. The best choice depends on your individual circumstances.
Leave It Alone
Resist the urge to tap into your retirement savings before you retire. The economy and the stock market will go through several down cycles over the years. Whatever happens, leave your retirement savings alone until you retire.
Talk with a Financial Adviser
Becoming a millionaire in retirement isn't all about earning a large income. The key is discipline and knowledge. Sit down with a pro and look at your options. Solas Wealth is an excellent resource. The Solas team will help you develop a savings and investment plan that helps you reach your goals, even if you have only a moderate income. They'll explain their recommendations, so you'll understand them. And they'll provide coaching to make sure you stay on track.
With the proper planning, discipline, and professional advice, you, too, can become a millionaire.