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How to Retire with $3 Million on a $70,000 Salary

By Sam Swenson, CFA, CPA - Jun 7, 2021 at 6:04AM

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Get a few key things right and let time do the work.

Achieving a portfolio balance of $3 million is no easy feat: this usually doesn't happen by accident. If you earn $70,000, some of the lofty retirement numbers you hear might seem daunting. But there are a number of ways to get to $3 million as long as you can be both patient and consistent. Here, we'll look at a few key pillars of achieving a huge portfolio balance by the end of your working life. 

Max out your Roth IRA every year

Simply contributing the current annual maximum to your Roth IRA of $6,000 from age 22 to age 67 makes a world of difference for two reasons. First, Roth funds are shielded from future taxes: money in a Roth has already been taxed and will never be taxed again. Next, if you choose to invest in low-cost index funds in your Roth, the account won't require any ongoing maintenance and you won't need to spend any time picking and choosing investments.

Check out the below table to see how your Roth IRA could grow over a full working career:

Starting Age Retirement Age Annual Rate of Return Annual Contribution Ending Balance
22 67 6% $6,000 $1,353,049
22 67 8% $6,000 $2,504,556
22 67 10% $6,000 $4,744,772

Calculations by author.

Note that this assumes the annual contribution limit never increases (it will) and that you never put a dime away in any other account (you should if you can). It also assumes you'll be earning an income for 45 years straight; obviously never a guarantee, but even if you moved to freelancing or part-time work a partial contribution would go a long way. 

Make the annual Roth contribution a habit as early on in the calendar year as possible and make sure it happens every year. There is a good chance that taxes will rise generally over the coming decade, so the fact that you'll have a fully funded Roth IRA exempt from taxes forever is a huge benefit.

Watering plants sprouting money.

Image Source: Getty Images.

Make use of your 401(k) up to the match

Your employer-sponsored retirement plan is one of the other keys to ensure you'll retire with a seven-figure portfolio. Say you make $70,000 and your employer will match your 401(k) contributions up to 5% of your salary. This means if you contribute 5% of your $70,000 salary ($3,500) to your 401(k), your employer will kick in another $3,500 for a total of $7,000. 

This money will grow tax-deferred: that is, you'll receive a tax deduction today and won't pay taxes again until you withdraw the money in retirement.

See what would happen if you did this every single year along the same timeline in the first table:

Starting Age Retirement Age Annual Rate of Return Annual Contribution Ending Balance
22 67 6% $7,000 $1,578,557 
22 67 8% $7,000 $2,921,982
22 67 10% $7,000 $5,535,567

Calculations by author.

If we take the two intermediate-return scenarios, not only would you end up with $3 million, you would end up with far more. This is simply due to the power of compound interest applied over long periods of time. In other words, the sooner you start investing money in tax-advantaged vehicles, the sooner you'll see a runaway compounding effect. 

Patience and consistency are the keys

Having enough is about limiting needs as much as it is earning more. If you can live modestly enough to ensure that you're saving and investing properly in the right tax-advantaged accounts, it really will pay dividends over time (literally and figuratively).

Remember again that the above strategies will work very well even if you have to take a year or two off or if you make partial contributions some years. We're all human, and you can only do the best that you can -- so don't be too hard on yourself to get it exactly perfect.

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