9 Steps to Millionaire Retirement on a $60,000 Salary

Good news: A $60,000 salary is rich enough to support a millionaire retirement goal. Even better, the contribution rate needed to reach $1 million in savings could be as low as 8% of your salary. That contribution rate is often manageable -- especially if you have a 401(k) with employer match.

Now for the bad news: The contribution rate gets higher, and fast, if you don’t start saving in your mid-20s. Not only that, but a shorter timeline allows less room to recover from investing mistakes or unexpected financial emergencies.

No matter when you start saving, it pays to be methodical about your retirement savings process. Follow a plan and you'll be quicker to adjust if something goes wrong. You'll also feel more confident in your decision-making.

Get going in the right direction with this nine-step process that'll take you to $1 million in retirement savings on a $60,000 salary.

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Building wealth in a tax-advantaged retirement account will be easier and faster than using a taxable account for your retirement savings. Your account options are a 401(k) if your employer offers it, a traditional IRA, or a Roth IRA. You could also save funds specifically for healthcare in an HSA if you have a high-deductible health plan.

If you have a 401(k) with employer matching contributions, save at least enough there to take full advantage of your match. There's no substitute for free money.

After you max out your match, you may choose to save extra funds to a different retirement account -- but you don't have to. For many retirement savers, a 401(k) on its own is enough. Reasons you might save outside of a 401(k) would be to minimize high fees or to gain access to more investment choices.

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You can't save $1 million from spare change. Depending on your timeline, you may have to contribute 10% or more of your salary to get the job done. To achieve that contribution rate, it helps to understand your current living expenses in detail. That way, you know what's available to save. And, if what's available isn't enough, it's easier to trim back those expenses when you already know where your money is going.

To start, review a few months of bank statements and categorize your spending. Group essentials like rent and utilities in one bucket and nonessentials like streaming services and dining out in another. You can and should spend on nonessentials, but you should also be comfortable capping your discretionary spending. That will make it easier to keep allocating funds to your retirement savings plan.

A compound interest calculator like this one helps you identify how much you should save monthly to reach your $1 million target. The key variables in the calculation are your investing timeline and your expected growth rate.

Your investing timeline is easy enough to figure out. If your goal is to amass $1 million before you retire, then the timeline is the number of years between now and the date you want to retire.

Your expected investment growth rate is less clear-cut. The long-term average growth rate of the stock market is about 7% after inflation. You could use this rate as a starting point, under two conditions. One, your timeline should be longer than 10 years. Even though the market averages out to 7% growth over time, performance from one year to the next can fluctuate. And two, you should plan on being heavily invested in stocks. If you put most of your money into bonds, your growth rate will be lower.

Asset allocation is the composition of your investments across different asset types, like stocks versus bonds. You can use this composition to manage your risk and growth potential.

A strategic approach to asset allocation makes sense when you consider how stocks and bonds behave. Stocks appreciate over time, but they can also lose value from day to day. Bonds produce a reliable stream of interest payments, but they don't appreciate the way stocks do.

Stocks are the growth engine, and bonds are a stabilizing force. Combine them in the right way and you get growth potential at a risk level you can handle.

Younger, risk-tolerant retirement savers might invest in 90% stocks and 10% bonds, for example. Someone who's older and more risk-averse might prefer a moderate mix of 60% stocks and 40% bonds. Know where you fall on that spectrum, and you'll make better investing decisions in your retirement portfolio.

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You have options for how you build your retirement portfolio. If you prefer a low-maintenance approach, you might like target date funds. They have a mix of stocks and bonds that gets more conservative over time, and the fund manages asset allocation for you. All you do is check in occasionally to verify the fund is still working for you.

Alternatively, you could build a simple portfolio out of index funds. For example, you might pick an S&P 500 index fund as your core holding. You could supplement that with a U.S. Treasury index fund.

If you go with index funds, pay close attention to fund expense ratios. A fund's expense ratio reduces the underlying investment performance -- so lower is better. Ideally, you'd keep your expense ratios below 0.2%.

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Your favorite compound interest or savings goal calculator can quickly calculate the monthly contributions needed to reach your million-dollar goal. For example:

• If you start saving at 25, contribute 8.5% of your salary, or $417 monthly.
• If you start saving at 30, contribute 12% of your salary, or $603 monthly.
• If you start saving at 35, contribute 18% of your salary, or $883 monthly.

These numbers assume a 7% average annual growth rate and an expected retirement age of 65.

The numbers also assume you make these contributions each month, without fail. That's why it's important to automate the process. While 401(k)s are always automated once you set them up, you can often automate IRAs, too.

Even if you have your retirement investing fully automated, it shouldn't be a set-and-forget process. You'll see better results if you check in on your portfolio at least once annually.

At each check-in, compare the performance of your funds to their benchmarks. Funds typically disclose this information, so it shouldn't be hard to find. The comparison can help explain your funds' absolute performance. For example, you'd expect your S&P 500 index fund to be down 20% when the entire stock market is also down 20%. But if the market is up 10% and your stock fund is up only 2%, that's a cue to dig deeper and find out why.

Also take this time to check your progress toward the million-dollar goal. Don't get too hung up on slow growth if it's related to market conditions -- a down market should resolve itself over time. Focus more on what you can control, which is whether you're making your scheduled contributions every month.

If $1 million is good, $1.2 million is even better, right? Even if you're on track to reach the million-dollar milestone, it's smart to increase your contributions anyway when you can. Because no one ever ruined retirement by being too wealthy.

Each time you get a raise, consider directing a portion of your increased income to your retirement account. In some economic climates, this may not be as easy as it sounds. Inflation does increase your living expenses, so a chunk of your pay raise will have to cover that. But if inflation is 3% and you just earned an 8% raise, you can afford to save more for retirement.

Increasing your retirement contributions boosts your savings, but it also keeps you from expanding your lifestyle just because you can. An ever-expanding lifestyle works against your retirement plan in two ways. First, higher living expenses take away from what you can save. Second, higher living expenses raise the amount you need to retire comfortably. If your lifestyle bloats from $60,000 annually to $100,000 annually, your $1 million target may be insufficient.

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Investment volatility is always stressful, but it's financially problematic as you near retirement age. You don't want your stock shares to lose value just as you are about to start taking retirement distributions. This is why experts recommend reducing your stock holdings as you get older. An easy formula to guide you in this reduction is the rule of 110.

To use the rule of 110, subtract your age from 110. The answer is the percentage of stock that's suitable to hold in your portfolio. At age 30, you'd have 80% stocks and 20% bonds, for example. Ten years later, you'd have 70% stocks and 30% bonds.

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You can reach a million-dollar retirement balance on a $60,000 salary by planning, implementing, evaluating, and adjusting. A compound interest calculator will be an essential resource to help you understand your target contribution rate, both now and later.

If your calculations return a contribution rate that isn't workable today, save what you can now. That will be far more productive than delaying your whole plan. You can always increase your contribution rate later, but you can't make up for lost investment time. In other words, act now and you give yourself the best shot at hitting that $1 million milestone before you retire.

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