Please ensure Javascript is enabled for purposes of website accessibility

Follow These Key Rules to Retire Wealthy

By Maurie Backman - Updated Apr 11, 2021 at 2:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Want to retire with plenty of money? Here's an easy path to get there.

Contrary to what you may have been led to believe, you don't need to earn a lot of money during your career to retire with a lot of money. If you follow a simple set of rules, you can wrap up your time in the workforce with a substantial level of wealth -- all without breaking a sweat. Here are some easy guidelines to follow.

1. Start saving from an early age

When it comes to growing retirement wealth, time is your greatest weapon, and that's why you must commit to saving for your senior years from a young age -- ideally, from the time you start collecting a steady paycheck. If you're able to part with just $250 a month starting at age 22, and you continue doing so until age 67, you'll end up with a nest egg worth close to $1.2 million. Now that assumes that you invest your money at an average annual 8% return, which we'll talk about next.

A smiling older man and woman clinking wine glasses.

Image source: Getty Images.

2. Invest aggressively

Many people shy away from buying stocks because they worry about losing money. But investing your retirement savings in stocks is a great way to turn a series of smaller contributions into a larger sum over time. We just saw what an 8% average annual return -- a reasonable one for a stock-heavy portfolio -- could do for a series of $250 contributions over 45 years. If that same portfolio were invested more conservatively at, say, just a 5% average annual return, its ending balance would come in at around $479,000 instead.

3. Avoid debt

The more debt you take on, the more interest you'll pay. And the more money you waste on interest, the less you'll have available to sock away for the future. Now it's common practice to take out a mortgage and a series of auto loans to finance vehicles. But do your best to avoid less healthy debt, like credit cards and even personal loans for non-emergency purposes.

4. Save in a tax-efficient manner

Saving for retirement in a traditional brokerage account will give you more flexibility with your money -- you'll get to withdraw it at any time without penalty. But if you save in a more restrictive IRA or 401(k) plan, you'll enjoy tax benefits that help you grow wealth. Traditional IRA and 401(k) contributions go in tax-free, and investment gains in these accounts are tax-deferred. Roth IRAs and 401(k)s don't offer an up-front tax break on contributions, but investment gains are completely tax-free and withdrawals are tax-free as well.

And there you have it -- you don't need to earn a six-figure salary throughout your career to amass an impressive pile of cash in time for retirement. Rather, you just need to commit to saving for that goal from a young age, invest your nest egg in stocks for added growth, steer clear of unhealthy, costly debt, and take advantage of tax-friendly savings plans. If you follow these rules, you'll really set yourself up for the retirement of your dreams without having to sacrifice too much along the way.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
323%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.