How To Save $1 Million For Your Retirement Fund by Bill Hoff
How To Save $1 Million For Your Retirement Fund by Bill Hoff
What is that magic number that you believe is enough to retire? For many, according to last year’s TD Ameritrade’s Retirement Pulse Survey, Bill Hoff said that magic number is $1,000,000. In the survey, participants were at least 23 and older, with a minimum of $10,000 to invest.
The survey touched on if they were open to slash spending to put away more money along with asking if $1,000,000 would be enough to have a financially stress-free retirement. Almost 90 percent of the participants state that they would lessen their expenses now to be able to save more for their retirement years. Some ways of saving more money were to brew coffee at the house, make home lunches rather than eating out, and downgrading or lessening costs on housing.
When it comes to the question of whether $1,000,000 would be enough? 6 out of 10 of the adults in different age ranges answer positively that $1,000,000 would be enough.
If these participants made the changes to lessen their spending and saved more, would they be able to reach that million after some time?
To get that answer, it depends on how much time you have left until you retire and how much money you have in your savings right now.
According to Fidelity, the average IRA balance is $107,100, and the average 401(k) is $103,700.
To go over some hypothetical situations on if it is possible to reach $1,000,000, we will use $100,000 as the amount that has been saved up so far and that each scenario has a seven percent return on your investments.
Situation #1: You want to retire in a decade, but before now, you didn’t really have a priority on saving a lot for retirement. So, you have $100,000 and want to know if you can grow it to $1,000,000 in 10 years.
The reality? Not a reachable goal unless you win the lottery or come across a windfall of sorts. The IRS has restrictions on the amounts you can annually put into your IRA and 401(k), so you would not be able to reach the magic retirement number on just putting money into retirement accounts.
If you started contributing the max limits in your IRA and 401(k) last year in 2019, the limits would have been $25,000. If you are over 50, that limit would have been $32,000.
Say that you are under the age of 50 and you decided to put in the max contribution limit which equals out to $2,083 each month for ten years, your savings would only increase to just less than $564,000.
The maximum contribution limits generally increase every year, so these estimations will be on the reserved side. But even then, to reach the magic seven figures, you would need to put additional savings into a taxable brokerage account, which has any growth liable to taxes. As per Bill Hoff when you also add taxes to the calculations of saving into a taxable account, you would need to put away $2,718 if your local, state, and federal taxes add up to 25 percent. This $2,718 would be an addition to the $2,083 you are contributing to your IRA or 401(k) to reach $1,000,000 in a decade.
Situation #2: You have 20 years until retirement and want to have a savings of $1,000,000. This can be done with just a 401(k) or IRA contribution of $ 1,238 every month. You only need to contribute $120 over $373,000, and the rest would be from returns on investments.
Situation #3: You have 30 years to save up $1,000,000. You can do this by contributing $154 every month for three decades. This can definitely be done if you lessen your expenses by switching for making home-packed lunches and home-brewed coffee rather than eating out or heading to that coffee shop at the corner by your office every morning. Also, because the monthly contribution amount is within the allowed contributions limit, the funds will be able to grow tax-free throughout the period you are saving for.
For those of you that do not have a lot of years left until retirement or don’t have a $100K saved may feel like this $1,000,000 goal is unrealistic for them. However, what we have covered in the article should at least encourage you to start saving immediately. The more time you have for your money to grow in investments, the more cash you will have at the end of it. And for those that don’t have a lot of money to contribute to your retirement savings, save what you can now and slowly increase it as you go.
With the money that is in your retirement savings account, be sure that the funds are put into investments of your choosing. If you do not choose your investments, the money will generally be automatically invested in money market funds, which earn you about two percent as per described by Bill Hoff. That would not allow you to get to the $1,000,000 goal.
Just like the situations given above, you will want to average a minimum of seven percent in growth. Many expert investors believe that seven percent is a realistic amount that considers inflation and bad return years. For instance, if your investments grow 15% percent one year, and another year you have no growth, you still have an average of a little over seven percent for those two years
As per Bill Hoff when it comes to contributions to a workplace retirement plan, if employer matching is offered, be sure to at least put in the max amount for the match as that is free money. Also, if you don’t plan to stay at that job for decades, at least stay until you are fully vested.
