Some people retire with $100,000 to their names and get by just fine. Others retire with 10 times as much and struggle to manage their bills.
The amount of money you end up needing in retirement will depend on your personal lifestyle choices and what you want to do with your time. But if your goal is to live someplace expensive and travel extensively, then you may need a few million dollars in your nest egg to pull that off.
The good news? A few smart moves on your part could set you on a path to retiring as a multimillionaire. Here are a few important ones to make.
Image source: Getty Images.
1. Learn to live below your means
To accumulate wealth, you'll need to save and invest money, which means you can't spend your entire paycheck month after month, year after year. Rather, you'll need to reserve some of your income for your 401(k), IRA, or another retirement account in which you'll be saving.
Living below your means isn't a difficult thing to do once you figure out what that means. A good bet is to choose one or two large expenses to cut back on rather than slash multiple small expenses that, individually, enhance your quality of life. For example, if you buy a home that's well below what you can afford, you might free up a respectable amount of money each month to sock away, which means you may not have to worry about spending a little extra on restaurants or upgrading to nicer hotel rooms when you take your yearly vacation.
Also, spending more mindfully could help you carve out more money to stash away for the future. Think about purchases rather than give into impulse buys. Ask yourself what's more important -- extra money for retirement or some additional clothing you don't really need. Training your brain to spend more judiciously could go a long way.
2. Save from a young age
When it comes to building retirement wealth, your most effective tool is time. If you start saving from a very young age, you'll have an easier time growing your 401(k) or IRA balance than you would if you wait until your 30s or beyond.
Imagine you're able to save $500 a month in a retirement plan beginning at age 22 and do so until age 67, which is full retirement age for Social Security purposes for anyone born in 1960 or later. If your investments generate an average annual 8% return, which we'll talk about more in our next section, you'll wind up with over $2.3 million to your name. Wait 10 years to start saving, and you'll have just over $1 million. Of course, that's nothing to scoff at -- but would you rather close out your career with $1 million or more than twice that amount?
3. Invest aggressively
Saving $500 a month for 45 years means contributing a total of $270,000 toward retirement. So how does that turn into $2.3 million? It's a simple combination of investment gains and time. But to snag an average annual 8% return on your money, you'll need to be prepared to load up on stocks in your retirement plan.
If you have an IRA, you'll get the option to choose individual stocks, whereas with a 401(k), you'll be limited to a combination of actively managed mutual funds and index funds. But if you want to give your savings a boost, investing aggressively is the way to go.
What happens if you play it too safe? A bond-heavy portfolio might give you just an average annual 4% return instead. In that scenario, saving $500 a month over 45 years would leave you with about $726,000 for retirement. Again, that's a nice sum of money -- but it's not $2.3 million.
Not everyone needs to retire a multimillionaire, but if that's your goal, these moves will help you achieve it. And that could set the stage for the retirement of your dreams.
