If you've already managed to build up a $100,000 retirement nest egg, you should pat yourself on the back. After all, that's not an insignificant sum. But you shouldn't rest easy.
That's because you'll need to grow that money considerably more if you want a comfortable lifestyle in your golden years. A common rule of thumb is that you'll need 80% of your pre-retirement income, and it will require a big portfolio to generate that kind of cash flow. For instance, Fidelity Investments recommends having the equivalent to your annual salary set aside by age 30, and steadily adding more so that you'll have 10 times your annual salary in your retirement stash when you turn 67.
So if you're earning around $100,000 a year, and that matches what you have saved, you'll need a strategy that can grow that money tenfold. These tips can help you can get there.
1. Start early
Investing when you are young has major benefits. Namely, the growth of your portfolio has more time to benefit from compound growth, and periods of volatility and decline have longer to get smoothed out.
Many people looking at investing will cite the S&P 500's 10% average annual return -- its historical average over nearly a century. But the index has had a nice run lately, including returning about 32% over the last year. The gains could slow down for a period.
Therefore, let's say the S&P from here generates a 6% average return annually. If you start with $100,000, at the end of 30 years, you'll end up with about $575,000 (not counting dividends). Now imagine that you start later, but get better returns. If you earn 8% per year for only 20 years, you'll still only have roughly $465,00 at the end of that period.
Long investing timelines also have the benefit of allowing the general upward trend of the market to overcome its downturns. Since the S&P 500 index was devised in 1926, there have been numerous recessions, the Great Depression, wars, terrorist attacks, and a pandemic. Yet after all the down periods, the S&P 500's average annual return is 10%.
2. Invest consistently
Timing your investments so that you buy stocks at or near the bottom of price troughs is an extremely difficult task. However, you don't have to worry about it if you add to your investments regularly.
One easy way is to take a set dollar amount and invest it at regular intervals. You could choose biweekly, monthly, quarterly, or any consistent time frame that works for you. The most important thing is that you stay disciplined and keep investing. By investing preset amounts on a schedule, you'll buy more shares or bonds when their prices are down, and fewer when they are higher. But it will average out over time.
If your employer offers a retirement account such as a 401(k), then the process is even easier. You can have a portion of your salary taken out of your paycheck pretax, before you even see it, and placed in whatever investments you chose from among those offered within the plan. The money will grow tax deferred, too. Your employer may even match your contributions to some degree.
3. No need to swing for the fences
Starting early also means you don't have to hit home runs with your investments. With $100,000 to work with, and many years ahead of you, you could reach your goals with a diversified portfolio of stocks. For instance, you could buy dividend-paying stocks like Walmart (NYSE:WMT).
Alternatively, if you don't have the time or inclination to do the research and upkeep required to properly invest in individual equities, you could choose to put your money into broad-based mutual funds or exchange-traded funds. That way, professional managers watch the investments for you.
One solid approach is to buy index funds. Since these are designed to match an underlying index, they require less management and can charge ultra-low fees. These have grown in popularity, especially S&P 500 index funds, but there are many others.
4. Sticking with it
Once you start, you need to stay the course.
Try to be disciplined and avoid taking early withdrawals or loans from your retirement savings accounts. Even as you're investing for the long-term future, make sure you have a robust enough emergency fund set aside elsewhere. Hopefully, that will be sufficient to cover whatever unforeseen needs arise.
In a similar vein, pulling funds from your retirement savings for other uses such as buying a home or taking a vacation will only hurt your chances of reaching your $1 million goal.
While you could place your $100,000 in high-risk investments that offer the chance of higher returns, you could lose a lot of money that way, too. Remember, building your retirement fund is a marathon, not a sprint.
By getting a head start and investing regularly, you can choose more conservative investments, such as a mix of stock and bond funds, and still have the ability to reach your goal.