If you're aiming for millionaire status before retirement, it may be possible if you get started now. The best part is that you may not even need thousands of dollars to make progress toward your goals. You can get started with as little as $25 per day, and start charting your path toward the million-dollar mark right now.
Below, we'll break down the numbers that can get you to the millionaire mark without draining your pockets.
Getting started with a Roth IRA
There are many vehicles you can use to build your million-dollar portfolio, but we'll focus on the Roth IRA (individual retirement account). The barriers to entry are low, and there are no age restrictions. Even a 12-year-old child can have a Roth IRA as long as they have qualifying earned income and meet the income requirements.
The Roth IRA is a special retirement account because you are allowed to contribute after-tax dollars. That means you won't have to worry about taxes later in life, and you'll never have to calculate required minimum distributions.
The downside is that you can only contribute up to $6,000 if you're under 50 in 2022. If you contribute the maximum amount for 40 years, you'll only have $240,000 saved. We'll show you how to get closer to the million-dollar mark by investing your contributions later.
Start your million-dollar plan with $25
If you're wondering how you can tuck away at least $6,000 in a Roth IRA every year, here's a simple plan to make it more feasible.
- Step 1: Start with $25 and calculate how much you earn every day to see how much of your money you need to save. Let's say you earn $250 per day. That means you need to allocate 10% of your earnings toward your million-dollar goals.
- Step 2: Automate your savings. You can stash away $25 per day for five days. That's $125 per week. Set up recurring money transfers from your checking account to your Roth IRA. After four weeks, you will have $500 in your Roth IRA.
- Step 3: After 12 months of consistent savings, you'll have $6,000 tucked away. If you have to hold off on contributions for a month, don't fret. You'll have until tax day of the following year to contribute to a prior-year Roth IRA.
Turn your Roth IRA contributions into profitable investments
You won't be able to hit $1 million in your Roth IRA by simply saving the maximum amount every year somewhere it wouldn't earn a return. Even if you had a Roth IRA at age three and consistently saved until you were 93 years old, the numbers still wouldn't work in your favor. You'll have to invest the money in high-quality assets that you know and understand to get the best results.
You can stick to traditional investments like individual stocks and exchange-traded funds if that's what your comfort zone allows. You can also venture out into alternative investments like real estate, crypto, and tax liens if you're an expert in those areas. You'll need a self-directed IRA to unlock those investment opportunities.
Let's say your investments yield an 8% average return, and you start investing at age 25.
- Age: 25
- Annual contribution: $6,000
- Investment rate of return: 8%
By the time you turn 60, you can have around $1.03 million in your account.
If you're 40, you can still see your million-dollar victory in a decent amount of time if you get a higher return on your investment. We'll run the numbers with a 10% investment rate of return.
- Age: 40
- Annual contribution: $6,000
- Investment rate of return: 10%
At age 71, you can have over $1 million in your account.
The above numbers are just examples of the amount of money you can accumulate in your Roth IRA alone. Don't forget about other accounts, such as employer-sponsored 401(k)s, SEP IRAs, and taxable brokerage accounts. These accounts allow you to save more money and help you expedite your millionaire goals.
Work your Roth IRA plan
It's easier to achieve any goal when you break it down into bite-sized pieces. Achieving your millionaire goals works the same way. All you have to do is set your goal, and work backwards to identify the annual, quarterly, monthly, weekly, and daily targets that will get you to the finish line. So, grab your $25 today and put your million-dollar success plan on autopilot.