If you're nearing retirement, you're probably checking your accounts to see if you have enough money to keep you afloat during your senior years.
The numbers can be a hard reality check, but don't beat yourself up if you feel ill-prepared for the days ahead. If you're short of your retirement goals or think you'll need more than you planned for, here are some strategies and tips that can help you boost your nest egg and get closer to the million-dollar mark.
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Start with the numbers
Before you dive into your master plan, it's important to calculate how much you'll need, so you can strategically work toward your goal. Here are some numbers to start crunching:
- What's the end goal? What number are you trying to hit? You may need more or less than a million to maintain your lifestyle.
- How old are you and how much time do you have to achieve your goal? If you delay your retirement date, you'll give your investments more time to grow.
- What vehicles will you use to achieve your goals and how much can you contribute to each account? We can look at employer-sponsored retirement accounts, IRAs, and taxable brokerage accounts.
Max out workplace retirement plans
As soon as you hit 50, you can save more money in employer retirement plans such as a 401(k), 403(b), or the Thrift Savings Plan (TSP) for federal workers. For 2022, you can contribute up to $27,000 to these accounts. Look at your finances and determine how much you can comfortably contribute every year. The more you contribute, the better your chances of reaching a million dollars during retirement. You'll also get tax benefits when you save in these accounts.
Let's say you're 52 and contribute around $27,000 to your 401(k) each year for the next 17 years. You'll have more than $450,000 to invest in assets like index funds or actively managed mutual funds.
Your investment rate of return will determine how fast your money grows. Although the stock market has delivered 10% annual returns over the long term, you can shoot for a 5% to 7% annual rate of return in case the market underperforms over the next 10 years.
You can accumulate more than $775,000 in your 401(k) if you save around $2,220 each month and plan for a 6% average annual investment return. Play around with the contribution amounts, annual return, and time retirement to see how much you can shoot for in your 401(k). Remember, your employer-sponsored retirement account is only one vehicle you can use to reach your financial goals.
Open IRAs
Individual retirement accounts (IRAs) are great companions to add to your retirement portfolio. You can choose between a traditional or Roth IRA. It all depends on when you want to pay taxes and your earned income for the year.
Let's say you contribute up to $7,000 to your Roth IRA in 2022. Going along with the same time horizon, you can rack up more than $250,000 in your Roth IRA if you contribute the $7,000 maximum every year and earn a 9% average annual investment return.
A self-directed Roth IRA may get you closer to your investment returns if you are well-versed in asset classes beyond the stock market. You can invest in real estate, start-ups, and other exotic assets using a self-directed IRA.
One of the most appealing features of a Roth IRA is the tax-free benefits. With the aforementioned strategy, you could potentially have a quarter-million dollars of tax-free money to add to your retirement portfolio.
Save in taxable brokerage accounts
If you want to ease the pressure of saving a ton of money in your employer-sponsored retirement plan each year, you can open a taxable brokerage account. There are no limits to how much you can contribute, and you have more flexibility to invest in individual stocks. If you're willing to do your research and dig up high-potential investment opportunities, you may snag a higher return. On the other hand, you may not get to enjoy all the tax benefits that come from investing in employer-sponsored plans and IRAs.
Your millionaire plan after 50
It might not be impossible to retire a millionaire if you're over 50, but it will take a lot of work. You'll have to consider tucking away more money, extending your retirement timeline, and making use of all the accounts that can get you to the finish line. Be willing to work the numbers, and unravel your possibilities. If you're ready to be consistent, create a master plan, and invest in your growth, your millionaire retirement goals can be within reach.
