Want to retire a millionaire? Consider incorporating these five habits into your financial life and watch your savings grow.
There’s no magic number when it comes to saving for retirement. Indeed, the exact amount of money you’ll need depends on a variety of factors, including when you plan to stop working, your lifestyle goals, and your overall health.
Nevertheless, many people strive to have at least $1 million in liquid assets when they stop working. Yet if you’re behind on your retirement savings, this number may feel daunting—if not impossible.
Fortunately, you may still be able to retire a millionaire by upgrading your personal money habits today.
If you want to retire a millionaire, these five habits can help:
Habit #1: Start Today
Compound interest can be a powerful force in positive markets. Even at a modest rate of return, an initial investment can double over a relatively short period.
Of course, the best way to take advantage of the power of compounding is to start saving and investing your free cash flow as soon as possible. The average 401(k) millionaire starts saving early and remains invested for at least 30 years, according to a recent Fidelity study.
But that doesn’t mean you can’t catch up if you’ve fallen behind on your savings.
If you aren’t contributing regularly to your retirement plan, saving even a small percentage of your income each pay period can make a meaningful difference. And if you are saving but still feel behind, consider increasing your contribution amount to see your balance grow more quickly.
Habit #2: Maximize Your Retirement Plan Contributions to Retire a Millionaire
Depending on your income and personal circumstances, maxing out your retirement plan contributions may be challenging. Nevertheless, maximizing your contributions is one of the key habits that can help you retire a millionaire.
For 2023, the amount an individual can contribute to a 401(k), 403(b), and most 457 plans will increase to $22,500, up from $20,500 in 2022. In addition, if you’re age 50 or older, you can contribute an additional $7,500 in 2023 (up from $6,000 in 2022).
At the same time, you can contribute up to $6,500 to a traditional or Roth IRA in 2023. And if you’re age 50 or above, you can contribute up to $7,500.
Habit #3: Choose the Right Asset Allocation
Asset allocation is the mix of investments you hold across your retirement and other investment accounts.
For long-term investors, this mix is typically the most important determinant of your investment performance over the long run. In fact, more than 90% of the variability of an investment portfolio’s performance over time can be attributable to asset allocation, according to some well-known studies.
Investing in growth-oriented investments like stocks and commodities can help significantly boost your savings over time so you can retire a millionaire. These asset classes can also help you outpace inflation, so your dollars don’t lose value in retirement.
Habit #4: Don’t Cash Out Early
Staying the course is essential if you want to retire a millionaire. Indeed, the most successful retirement savers don’t just start early; they stay invested for the long run.
If you need cash, consider all other options before dipping into your retirement savings. Early withdrawals come with tax consequences and other penalties, which can undo years of progress. Not to mention, withdrawing funds during a down market can make it even more difficult to recoup your losses when the market recovers.
In addition, resist the temptation to market-time. In other words, don’t panic and go to cash when markets are turbulent.
Market-timing requires you to get two decisions right: when to exit the market and when to get back in. And while going to cash may help you avoid the worst trading days, you’re also more likely to miss the ensuing recovery.
In fact, a recent study from Bank of America illustrates how staying invested is, on average, more profitable than attempting to time the market. By analyzing data going back to 1930, BOA found that if an investor missed the S&P 500′s 10 best performing days per decade, they would have earned 28%, cumulatively. Meanwhile, those who stayed invested the entire time would have earned a cumulative 17,715%.
Habit #5: Look for Strategic Tax Planning Opportunities
Lastly, look for opportunities outside of traditional retirement savings accounts to save more of your hard-earned money and retire a millionaire.
For example, depending on your healthcare plan, you may be eligible for a health savings account (HSA). An HSA offers rare triple-tax benefits, which can help you save for current or future healthcare costs.
Here’s how it works: you contribute to your HSA with pretax dollars. Your HSA investments then grow tax-free until you need to withdraw funds. In addition, withdrawals are tax-free if you spend the funds on qualified healthcare costs. And since your HSA funds never expire, you can leave them in the account to grow tax-free through retirement.
A Trusted Financial Advisor Can Help You Retire a Millionaire
If you haven’t revisited your retirement plan in a while (or don’t have one at all) now may be the right time to recommit to your savings and investment strategy. It’s never too late to change your financial habits and potentially retire a millionaire.
A trusted financial advisor can help you develop a plan to reach your financial goals and retire on your terms. If you’d like to learn more about how we can help, please contact us. We’d love to hear from you.