The last couple of months have been a wild ride for the majority of Americans, with the coronavirus pandemic wreaking havoc on our society. The stock market has also been hit hard, with both the Dow Jones Industrial Average and S&P 500 experiencing one of their worst quarters in history earlier this year.
This market downturn also means many people have watched their retirement investments dwindle, which can be concerning whether you're close to retirement age or still have decades before you plan to leave your job. However, while we may be facing uncertain times, there is still a chance you can retire a millionaire. Here's what it will take to achieve this goal.
Retiring a millionaire after COVID-19
If your savings have taken a serious hit over the last few months, you might be worried about your ability to retire at all, let alone retire a millionaire. The average 401(k) balance dropped by nearly 20% during the first quarter of this year, according to research from Fidelity Investments, and IRAs didn't fare much better -- the average account balance fell by around 14% during the same time period.
Keep in mind, however, that the stock market always manages to correct itself given enough time. It could take years before the U.S. economy recovers from COVID-19's impact, but a few years is a relatively short period of time when you're planning for retirement. Saving for retirement takes decades, and if you still have plenty of time before you're ready to retire, your savings should bounce back well before you leave your job.
Whether you'll be able to retire a millionaire will depend on just how much time you have before retirement and how much you're able to save each month. If you've lost your job and are focusing on simply making ends meet, you might not be able to afford to invest right now. That doesn't mean it's impossible to retire with at least $1 million stashed away, but you will need to work harder later to catch up.
In addition, those who are closer to retirement age will have a tougher time saving at least $1 million. This is especially true if you've adjusted your asset allocation so that your portfolio is weighted more heavily toward conservative investments like bonds (which you should be doing as you get older). Adjusting your asset allocation helps limit your risk during market downturns like this, but it also makes it harder to see significant gains in a relatively short period of time.
Investing during uncertain times
During periods of stock market volatility, it's tempting to press pause on investing until the market is in better shape. But if you can afford it, investing right now might be a wise move.
When the stock market is down, stock prices are at their lowest. This means you can essentially invest when the market is on sale, and get more for your money. Then when the market bounces back, you'll reap the rewards and potentially see significant gains. If you temporarily stop investing, you're missing out on this valuable time to boost your savings.
Additionally, saving at least $1 million requires consistent work. If you started saving at age 30 and wanted to retire at age 67 with $1 million, you'd need to save around $550 per month, assuming you're earning a 7% annual rate of return. But if you had started saving at age 25, all other factors remaining the same, you'd only need to save around $375 per month to reach your goal.
Those extra few years of saving make a big difference, and if your investments have already been hit hard by the recent market downturn, it's even more important to keep saving consistently. Time is your most valuable asset, so don't waste it.
Retiring a millionaire isn't easy even in good economic times, and it's even more challenging to keep your savings on track amid the COVID-19 crisis. Not everyone will be able to reach $1 million in savings by retirement age, but saving what you can is always better than saving nothing. By socking away as much as possible and saving consistently, you can build a solid nest egg by the time you're ready to retire.