Not everyone feels the need to retire a millionaire. But let's face it — it's a good goal to have. And while it may seem like the sort of goal you can only achieve if you earn a high salary, the reality is that even average earners can close out their careers with $1 million or more to their name.
It's all about having the right strategy
If your goal is to retire a millionaire, you'll need to do a few key things:
Save from an early age.
Take advantage of a tax-advantaged retirement account.
Invest your money wisely.
So let's break down each point. First, getting started early really just means setting funds aside for retirement as soon as you begin to earn a steady paycheck. That may happen age of 20, 25, or 30. But if you wait too long to start saving for retirement, you'll lose out on years of investment growth.
Next, it'll help to house your savings in an IRA or 401(k) plan, as opposed to a traditional brokerage account. With a brokerage account, you'll get easy access to your money when you want it, whereas IRAs and 401(k)s penalize you for taking withdrawals before age 59 1/2.
But the benefit of saving in an IRA or 401(k) is getting to enjoy some tax breaks. With a traditional IRA or 401(k), the money you contribute goes in pre-tax, and investment gains in your account are tax-deferred, which means you don't pay taxes year to year, but rather when you take withdrawals.
Meanwhile, Roth IRAs and 401(k)s don't give you a tax break on your contributions. But your investments get to grow completely tax-free. And withdrawals are tax-free as well.
Finally, you'll need to invest your money in the right places. For the most part, that means individual stocks if your plan allows for it (401(k) plans generally don't) and/or index funds. If you play it too safe with your investments by sticking mostly to bonds, you may not get growth you're hoping for.
How much wealth can you build on a $60,000 income?
Becoming a millionaire on a $60,000 salary will require some sacrifice. But is it doable? Absolutely.
As a general rule, it's a good idea to aim to set aside 15% to 20% of your income for retirement. So let's say you're able to part with 20% of your earnings, or $12,000 a year.
Let's also assume you follow this advice and you give yourself a 40-year savings window, you save in an IRA or 401(k), and you invest heavily in stocks so that your retirement plan delivers an average annual 7% return, which is a few percentage points below the stock market's average.
Do all that, and you'll end up with about $2.4 million.
Now, what if you can't manage to part with $12,000 a year out of $60,000? Even if you're able to save only half that amount, all other things being equal, you'll wind up with $1.2 million. That's certainly a respectable sum.
Of course, if you're socking away 20% of your $60,000 salary, it means you probably aren't taking fancy vacations every year and you're probably maintaining a pretty frugal lifestyle. But if you're willing to make some reasonable sacrifices, you could end up buying yourself the retirement of your dreams.
The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.