3 Reasons You Won’t Retire a Millionaire — and How to Fix Them

Many people have the goal of retiring with plenty of wealth — enough to sustain them throughout their senior years and allow them to fulfill their lifelong objectives. But if you’re not careful, you could end up thwarting your plans to kick off retirement as a millionaire.

Here are three reasons you may not manage to grow your savings to $1 million — and what you can do about them.

1. You lose too much money to debt

The more money you spend on costly debt payments, the less you’ll have left over to sock away for retirement. Mortgage debt is generally considered the healthy type to take on since it allows you to eventually own an asset that can appreciate in value over time and even serve as a source of retirement income. Credit card debt is the opposite — it’s an expense that can cost you tons of money via interest charges that you don’t get anything out of at the end of the day.

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If you’re overloaded with debt, it could seriously hinder your ability to consistently fund a retirement plan or sink money into an investment account, so do your best to keep unhealthy debt to a minimum. Set up a budget so you can see how much money you can afford to spend on a monthly basis, and limit your spending in categories that aren’t essential, like entertainment, until you’ve paid off your credit cards and are in a better place financially.

2. You invest too conservatively

Many people stay away from stocks because they can be very volatile. But if you play it too safe in your portfolio, you may not generate high-enough returns to meet your goals.

Say you’re able to sock away $400 a month over a 40-year period. At a 4% average annual return — which is what you might get with a conservative portfolio — you’ll end up with $456,000. With an average annual 8% return — which is more than reasonable with a stock-heavy portfolio — you’ll end up with $1.24 million.

If you’re worried about hand-picking stocks for your portfolio, look at index funds instead. They take a lot of the guesswork out of investing, so there’s less pressure on you, all the while allowing you to capitalize on the broad market’s strong returns.

3. You don’t take advantage of tax breaks

Saving for the future in a brokerage account will give you the most flexibility with your money — you can withdraw from your account at any time, as needed. The problem, however, is that by sticking to that account, you’ll miss out on lucrative tax breaks that allow you to grow more wealth.

Traditional IRAs and 401(k)s, for example, let you contribute pre-tax dollars toward retirement, and then investment gains are tax-deferred until you take withdrawals. Roth IRAs and 401(k)s are funded with after-tax dollars, but investment growth in these accounts is completely tax-free and withdrawals aren’t taxed, either. While it’s OK to invest some of your money in a regular brokerage account, you’d be wise to take advantage of an IRA or 401(k) plan if you want to retire with a large pile of cash.

Retiring a millionaire certainly isn’t impossible. But if you make these mistakes, you may fall short of meeting that goal. Be sure to avoid them at all costs.

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