The million-dollar mark seems to be the first milestone for people who want financial security during retirement. However, if you're in your 30s, you're probably wondering if you'll ever reach your target retirement number.
The good news is that there's still time to reach your goals before you turn 70. All you have to do is make the most of the accounts at your disposal and aim for market-beating returns to expedite your success. Even if your returns are not above average, you'll still have a chance to create a winning portfolio by using benefits at work and setting up your own retirement plan.
Image source: Getty Images.
Start building wealth at work
The easiest place to build your million-dollar portfolio may be at work. Fidelity reported an increase in 401(k) millionaires over the last year, which proves the process doesn't have to be complicated. You can put your contributions on autopilot and let your employer handle all the technical details.
For 2022, you can contribute up to $20,500 to a 401(k) if you're under 50. Your employer may even match your contributions up to a certain percent of your annual salary.
If you keep this up for five years, you'll have well over six figures in your 401(k) by contributing the max. All you need is a great mix of investments to supercharge the growth of your portfolio over time.
IRAs can get you to the finish line
Individual retirement accounts (IRAs) can allow you to pump up your retirement portfolio beyond your employer-sponsored retirement plan. You can choose a traditional or Roth IRA, based on the qualifications and when you want to pay taxes.
Let's say you start your million-dollar retirement plan when you turn 31. If you make consistent contributions and earn a decent return, you can easily accumulate a million-dollar Roth IRA before you hit 70.
For instance, here's a sample calculation of what it would take to reach $1 million using the following assumptions:
- Age: 31
- Annual contribution: $6,000
- Investment rate of return: 8%
By the time you reach 66, you can have around $1.03 million in your account.
But if the retirement bug doesn't hit you until your mid 30s, you still have a chance to achieve your goals. If you can achieve market-beating returns, that's even better. We'll increase the investment rate of return in this example.
- Age: 35
- Annual contribution: $6,000
- Investment rate of return: 10%
At age 66, you can still hit your million-dollar sweet spot because your investments delivered higher returns. If you've tucked away money in a Roth IRA, your withdrawals will be tax-free when you hit 59 1/2.
Let's say you're going on 40 and rethinking your entire life plan. If you've pushed retirement planning to the side for decades, don't beat yourself up. You just need to take intentional steps to get on track toward your goals. You can still shoot for a million-dollar retirement account, even if you start late in your 30s. Here's how:
- Age: 39
- Annual contribution: $6,000
- Investment rate of return: 10%
You'll be around 70 when you hit your goal. Although you'll be a bit older, you still will make it to the million-dollar mark because of your consistent contributions and impressive returns over time.
Taxable brokerage accounts
You don't have to rely solely on retirement accounts to achieve your goals. There are also taxable brokerage accounts, and they don't come with annual contribution limits. You'll have more flexibility around withdrawals, just in case you decide to retire early.
Open a brokerage account at a financial institution that best meets your needs. Then, consider a good mix of the following options:
Buying high-quality growth stocks may give you the best chance of earning explosive returns over time. But if you're looking for a steady stream of predictable income, your dividend income can deliver on those needs. If you don't want to pick individual stocks, you can always go with index funds or exchange-traded funds so you can reduce your risk.
Your millionaire money plan is within reach
When you have various accounts working for you, it's easier to achieve your goals. You can start by choosing the best accounts for your portfolio. Then, determine the maximum amount you want to contribute every year and put your money to work with your favorite assets. Fast forward 30 years later, and you'll be amazed at what you accomplished by taking simple steps right where you are now.
