Have you ever wondered whether you have the financial ability to set aside $1,000,000 by the time you retire? It’s a goal that is within the realm of possibility for many working adults. Unfortunately, many assume it’s an impossible challenge and simply neglect to make the effort. However, after spending a few hours examining your budget and making estimates about future earnings, you’ll likely be surprised to discover that you can indeed make a run at building up a $1 million retirement account. For so many working people, the trick is making a detailed plan and then sticking to it. Here are the steps to take if you want to maximize the amount of capital available for your retirement years.
The power of compound interest is on your side. The younger you, the better. Here’s one example. Setting $600 per month aside each month, between age 25 and 65, assuming a 5.5 percent compound rate of interest, grows into $ 1,044,623.75 by the end of the 40-year period. Decide how much you can save, and remember that you can put $6,000 per year into an IRA, which grows tax-free until it’s time to begin making withdrawals.
Minimize Monthly Expenses
Setting aside a large sum of money for any purpose, takes discipline, determination, and planning. Fortunately, there are lots of ways to minimize your monthly expenses. One of the fastest is to opt for a student loan refinance arrangement with a private lender. In essence, you’re taking your current education debt and rewriting the original contract to reflect your current credit rating and income level. For most adults who still have outstanding school debt, a refinance is a quick and painless way to reduce monthly payments, and that can mean an instant boost to your disposable income. No matter how you decide to reduce your cash outflow, consider refinancing any remaining student financial obligations to chop down total monthly expenses.
Use an IRA
There’s no question about the best type of account for long-term savings. Consider using either a traditional (pre-tax) or Roth (after-tax) IRA. Standard IRAs allow you to deduct the annual contribution from income, which is a nice tax break you get immediately. Later, when it’s time to pull money out of the account, you’ll pay tax on the withdrawals, but will almost certainly be in a lower tax bracket than you are at the peak of your working years. Roth IRAs are a bit different and, according to some people, the better option. There’s no current tax break because you use after-tax income to fund the account. But, when retirement comes, you pay no tax on the withdrawals. Understanding your withdrawal strategies is just as important as understanding your deposits as well.
Consider a Second Job
Unless you have 40 years between now and age 65, it’s important to maximize the amount you set aside every month. For a good number of people in their 30s and 40s, it’s wise to take a second job just for the sake of building up a long-term savings balance. There’s no need to always work two jobs, but simply taking a part-time position for a few years can add a powerful dose of capital to your $1 million goal.