In this article, we will be looking at 11 simple money moves to retire a millionaire.
Smart Money Moves and Retirement Planning
According to personal finance expert Dave Ramsey, anyone living and working in America can retire a millionaire. But is it possible overnight? Let’s face it, making a million dollars overnight isn’t just extremely risky, but also highly unlikely. However, you can retire a millionaire provided you make some smart money moves and fuse them into a solid retirement plan. Before we dig deeper into the many simple money moves to retire a millionaire, ask yourself: are you saving anything for retirement?
Almost 3 out of 10 Americans don’t have any retirement savings at all. Thankfully, saving for retirement can begin at any age. Even if you’re 50 years old and have no retirement savings, all is not lost. However, the importance of saving for retirement cannot be stressed enough given that workers now believe they need at least $1.8 million to retire comfortably, as per The Charles Schwab Corporation (NYSE:SCHW) survey. Sadly, 14% of savers feel they aren’t likely to reach these goals at all. Combine this scenario with current levels of inflation and stock market volatility, many prospective retirees give up on saving for retirement without even trying.
“While many workers are trying to cut back on spending, some costs are unavoidable areas of their finances have taken a hit. Despite these challenges, retirement saving continues to be a priority for workers, who have maintained their 401(k) savings rates and largely stayed on top of their 401(k) investments over the past year.”
– Brian Bender, Head of Schwab Workplace Financial Services, The Charles Schwab Corporation (NYSE:SCHW).
A primary retirement resource for many of these workers is a 401(k) plan, and Social Security is their next best bet, notes The Charles Schwab Corporation (NYSE:SCHW). Bank of America Corporation (NYSE:BAC) has witnessed a rise in average 401(k) account balances in 2023, up $11,235 from the previous year. Bank of America Retirement and Personal Wealth Solutions, in partnership with Bank of America Institute, released these statistics in their fourth quarter 2023 Participant Pulse report. While one reason for the rise in balances has been the increased value of investments, workers have also been contributing more to their accounts.
“Placing such a high priority on their 401(k) is not surprising since it is their primary retirement resource, with workers counting on it to deliver 40% of their retirement income. That’s double what workers expect from the next closest source, which is Social Security at 20% of retirement income”.
Bank of America Corporation (NYSE:BAC) reports similar findings on retirement savings:
“These insights offer signs that people are prioritizing their retirement savings, with more employees increasing their contribution rates and fewer taking hardship distributions.”.
-Lorna Sabbia, Head of Retirement and Personal Wealth Solutions at Bank of America Corporation (NYSE:BAC).
While the quest for saving up a million dollars in retirement is quite important, it is even more important to decipher how long it’s going to last. After all, seniors are now living longer and need more in retirement than they did previously. Given the state you live in and accounting for other factors, $1 million can last an individual for about 18 to 20 years. This also depends on the living expenses in the area you choose to live in, taxes, and the lifestyle you wish to keep. Our study on the best states to retire for the cost of living and taxes can be a good start when working on stretching your retirement income further. On the other hand, if you wish to retire wherever you want without worrying about the finances, you need to figure out how to retire a millionaire.
A money manager working on a laptop, surrounded by a world of financial data.
Methodology
To compile our list of simple money moves to retire a millionaire, we have used a consensus approach, incorporating advice from renowned finance experts and reputable sources such as Investopedia, Bankrate, and The Motley Fool. Each time a money move was recommended by a source, it was awarded one point. Scores were summed up and places were ranked based on the total Insider Monkey score.
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Here are the simple money moves to retire a millionaire:
11. Start Early
Insider Monkey Score: 8
If you start early, you can retire a millionaire on as little as $35 a week. While the number is made up, it stands to stress the power of compound interest in generating passive income. As per T. Rowe Price, aim to save at least 15% of your income every year till retirement. While not everyone can achieve a set target for their savings, the important thing is to start as early as possible and slowly increase the rate of contributions to help get savings on track. A retirement calculator can help prospective retirees plan the financial aspects of their retirement, such as how much to save to reach their target and how long their money is going to last.
10. Maximize Retirement Contributions
Insider Monkey Score: 9
Not only can maximizing retirement contributions help you save faster, but also allow you to retire earlier. Maximizing contributions to tax-advantaged retirement accounts such as 401(k)s and IRAs allow your investments to grow tax-deferred. In case you have a 401(k) account, contribute the maximum amount allowed to allow your investment to grow tax-deferred until retirement. Traditional IRAs offer tax-deferred growth while Roth IRAs offers tax-free withdrawals in retirement. The more you contribute, the more your investments can benefit from the magic of compound interest.
9. Claim Full 401(k) Match
Insider Monkey Score: 10
One of the biggest 401(k) mistakes you can make is forfeiting valuable 401(k) matching contributions. Doing so is like leaving free money on the table. With the SECURE 2.0 Act of 2022, there are enhanced automatic enrollment options available for plan sponsors. An employer may choose to match contributions through a generous matching formula or not match at all. When an employer matches your contributions, it means they are adding a certain amount to your 401(k) in addition to what you are already contributing. When you have a full match, 100% of your contributions will be matched dollar for dollar. If you contribute enough to receive the full match, it doubles your investment return without any risk.
8. Automate your Contributions
Insider Monkey Score: 12
The next simple money move to retire a millionaire is to automate your contributions. Automating your contributions will allow your money to transfer automatically and is a fool-proof way to contribute to your savings. This is essentially a “set it and forget it” approach that can be used in several ways. For instance, employees can set up direct deposits where a portion of their paycheck goes directly into their savings account. Another way is to enroll in a tax-advantaged retirement plan or use automatic savings tools available online. Most retirement accounts allow you to transfer funds automatically on a given schedule.
7. Live Frugally
Insider Monkey Score: 13
Living frugally is a simple money move that can help you retire a millionaire. That’s right, cutting out unnecessary expenses from your life can help you save efficiently. It can also help you stay out of debt. Choose to cook at home instead of dining out, opt for affordable entertainment options, and don’t upgrade your lifestyle as and when your income increases. Use the money you use in retirement accounts, especially those with tax advantages. Being mindful of your spending habits will help you save more and help you on your journey to retire a millionaire.
6. Have an Emergency Fund
Insider Monkey Score: 15
As per Vanguard, 3.6% of workers took hardship withdrawals from their 401(k)s in 2023- a record high. While such kinds of withdrawals provide the money in need, they usually come with a penalty. The IRS, however, does waive the 10% penalty from hardship withdrawals in some situations, such as if you’re pursuing higher education or purchasing a house for the first time. Not all hardships qualify for a waiver, and funds once withdrawn cannot be returned to the account even if finances improve. For this reason, it makes sense to have an emergency fund so that your retirement accounts stay safe from such withdrawals. An emergency fund should have at least three months’ worth of living expenses in it (if not more). Once it is replenished, immediately go back to saving in it again.
5. Have Multiple Sources of Income
Insider Monkey Score: 16
Next on our list of simple money moves to retire a millionaire is having multiple sources of income. Having diversified income streams, such as through freelancing, having a side business, or dividends provides a safeguard against the risk of having zero income in any of the months. This way, even if one of your income streams diminishes or even disappears, you will have other sources of income to depend on. You won’t have to go into debt, and might even be making enough to keep funding your retirement accounts.
4. Minimize Debt
Insider Monkey Score: 18
This one is easier said than done. However, high-interest debt is a major bottleneck standing in the way of your retirement savings and your road to retiring a millionaire. In worst-case scenarios, you may be carrying it up to your retirement, which will significantly drain your funds then too. Nevertheless, minimizing debt is crucial to free up your money and divert it to your retirement accounts. To minimize your debt faster, create a debt repayment plan where you prioritize high-interest debts and make minimum payments on the rest. You may also consider consolidating your high-interest debts into a single debt to minimize your payments and lower the interest you need to pay. Contact your creditors and negotiate a lower interest rate, considering you have a good credit history.
3. Focus on Low-cost Investments
Insider Monkey Score: 20
Another simple money move to retire a millionaire is to keep your focus on low-cost investments. By minimizing expenses on your investment, you can ensure that you can avail the maximum investment returns. Many people don’t realize the fees associated with investments because the money is taken from their retirement accounts. However, these fees are eating a part of your profits which is why it’s important to choose low-cost ones. Some examples of low-cost investments include ETFs or index funds. By investing in such options, investors can ensure that they can achieve steady growth, accumulating more wealth needed to retire a millionaire.
2. Seek Professional Advice
Insider Monkey Score: 21
This simple money move to retire a millionaire cannot be stressed enough. A financial advisor can help in guiding you based on your unique financial situation. They can help in garnering a solid retirement plan that will ensure you maximize your savings and investment returns. Tax planning, assistance with investment strategies, and debt management are some of the many areas they can help you with.
1. Invest in Diversified Index Funds
Insider Monkey Score: 22
One simple money move to retire a millionaire is to invest in broadly diversified index funds. Index funds are “pooled investments” that are designed to follow specific rules that replicate the performance of market indexes. Even if an investor knows little about investing, index funds can help them invest easily. To retire a millionaire with the help of index funds, make sure they are
- Low-cost: Index funds typically have expense ratios that are lower compared to actively managed funds. See if you can find an attractive index fund with an expense ratio of less than 0.5%. Low-cost index funds mean more money is invested and is compounded over time.
- Broadly Diversified: When you choose an index fund that is broadly diversified across a wide range of industries and sectors, you reduce the risk associated with investing in individual stocks.
- Consistent Returns: Index funds aim to provide returns that closely match overall market performance. As an investor, look for index funds that have returns of more than 10% annually.
Other factors to look out for when choosing an index fund are its tracking error, tax efficiency, and reinvestment options. The most popular index funds are based on the Standard & Poor’s 500 index. Another option is the Nasdaq composite index. Whatever index funds you choose, make sure they align with your investment goals, risk tolerance, and overall financial situation. In turn, you will be able to build a diversified and low-cost portfolio that will help you retire a millionaire.
At Insider Monkey, we delve into a variety of topics, ranging from the best places to retire to retirement and investment strategies; however, our expertise lies in identifying the top-performing stocks. Currently, Artificial Intelligence (AI) technology stands out as one of the most promising fields. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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