Many people dream of living it up in retirement. And while you don’t necessarily need a million dollar nest egg to do that, let’s be real — it’ll certainly come in handy.
The good news is that you don’t need to earn a ton of money to amass millions in time for your senior years. All you really need to do is stick to these basic steps.
1. Start saving and investing from an early age
The more time you give your money to grow, the easier it becomes to turn a series of modest retirement plan contributions into a very large number. And so if you begin saving for your senior years from an early age, there’s a good chance you’ll reach millionaire status by the time your career wraps up.
Imagine you being socking away $400 a month in an IRA or 401(k) plan at the age of 25 with the goal of retiring by age 70 (which, to be clear, is not all that late given today’s life expectancies). If your investments deliver an 8% average annual return (more on that in a bit), you’ll wind up with over $1.8 million.
But watch what happens if you delay your savings efforts by 10 years. If you sock away $400 a month over 35 years instead of 45, you’ll end up with $827,000. That’s still a nice amount of money, but it doesn’t have the same ring as $1.8 million.
2. Don’t play it too safe
If you’re the risk-averse type, you may not love the idea of loading up on stocks in your retirement plan, since they can be volatile. But if you want to snag the 8% return we used in our example above, you’ll need to rely on stocks to comprise a large portion of your portfolio.
Granted, loading up on stocks doesn’t guarantee you an average annual 8% return. But since the stock market’s historical average is a bit higher than that, it’s a fair assumption.
By contrast, if you mostly invest your nest egg in bonds, you might score an average annual 4% return. Contribute $400 a month to your savings over 45 years at that rate of return, and you’ll be looking at an ending balance of about $581,000 instead of $1.8 million.
3. Branch out
While it’s a good idea to go heavy on stocks in your retirement portfolio, it also pays to diversify. In fact, you should keep a small portion of your nest egg in bonds when you’re younger and move more money into bonds as retirement nears.
You may also want to dabble in other investments that lend to more diversity. One such option is real estate.
The beauty of investing in real estate is that your investments might follow a different pattern than your stock holdings so that if the stock market crashes, the real estate portion of your portfolio won’t automatically follow suit. And you don’t have to buy physical properties to invest in real estate. Instead, you could add REITs, or real estate investment trusts, to your portfolio, which could provide a steady stream of income for you to reinvest.
If retiring a millionaire is a goal of yours, know that it’s more than possible to get there. You just need to commit to that goal early on, take some risks, and assemble a diverse investment mix that lends to a robust nest egg.
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