This article discusses one simple money move to retire a millionaire. To check our full free list, head over to 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.
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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 is the the simple money move to retire a millionaire:
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.
Looking for more money moves to retire a millionaire? Check out our free full list at 11 Simple Money Moves to 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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Disclosure: None. This article is originally published on Insider Monkey.