Breaking news: You don’t need a huge salary to retire a multimillionaire. Don’t get me wrong – collecting $2 million nest eggs isn’t easy. If it were, everyone would be living a good life in retirement. But it is possible to accumulate an impressive nest egg, and I will tell you how.
First, know that you will have to give up some indulgences in your work life. That doesn’t mean you can’t dine out or subscribe. Netflix. But you will spend more conservatively than most people you know. And you may need the extra determination to politely listen to your friends’ stories about new cars, kitchen remodels, and tropical vacations.
The good news is that these roles will change later. stick to you wealth plan and you’ll be living your best life in retirement. And friends who are less disciplined about saving will likely have less freedom and security.
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If you can accept a more conservative lifestyle today for a richer life tomorrow, then let’s get into the details of a $2 million retirement with a salary of $60,000.
1. Contribute twice as much as anyone else
According to a study by Fidelity Investments, the average total contribution rate in workplace retirement accounts in 2021 was 13.9%. This total includes employee pay deferrals and employer matching contributions.
On your $60,000 salary, a 13.9% contribution equals $8,340 per year or $695 per month. That’s a good level of contribution, but it won’t get you to the $2 million goal. You have to do more than average – especially double.
This is easier when you have an employer match to assist you. If you do not have an employer match, it is your responsibility to save up to 27.8% of your salary in full. If that sounds impossible, create a budget to determine the maximum amount you can save. Better than nothing. And you can always increase your contributions later.
2. Invest in the market
Investing $1,395 monthly for most of your career should get you into a $2 million nest egg. This assumes your investments have grown in line with the stock market’s historical annual average of 7% after inflation. It is reasonable to expect this rate of return from a broad market in the long run. index fundas Vanguard 500 Index Fund (NYSEMKT: VOO).
To avoid excessive volatility, pair your stock index fund with a more stable fixed income fund. If you are young, you can invest 10% of your contribution into fixed income. Gradually increase this percentage as you approach retirement.
3. Don’t overthink the timeline
According to compound interest calculator (Like this), you will reach $2 million in about 33 years under the above assumptions.
Thirty years is a long time to wait. It’s so long that you can easily get discouraged and give up – you can’t even start. You will have to resist this way of thinking. Instead, focus on making your retirement contributions a habit. Regardless, commit to investing your $1,395 (or any amount) each month.
4. Check in, but not too often
It can be a mistake to check your account balance too often during the first years of this plan. It takes time for your wealth momentum to build – especially when the market is going through a rough patch. If you expect instant results, you may be disappointed.
Check-in once or twice a year should be sufficient initially. Compare your investment performance at these check-ins with the market average over the same period. If you’re in a broad index fund, your returns should be similar to market returns. Any low performance is likely high fund fees or high account fees.
High wages in 401(k)s can be problematic, especially if you work for a small company. You can move some of your investment to another account with lower fees – but only do so after the employer has maxed out your match.
You should also double check. asset mix regularly. As the value of your equity fund grows, it will make up an increasing percentage of your balance. The larger this percentage, the more volatility you see in your account. You may need to periodically adjust by selling some of your equity fund and using it to buy more of your fixed income fund.
The road to $2 million retirement
The road to $2 million retirement is long but not too complicated. Invest a significant percentage of your salary in the stock market monthly for the foreseeable future. Check your progress occasionally in the early years and more often thereafter. And keep your faith that your efforts will be rewarded greatly.
If your motivation to stick to your plan dwindles, imagine the retirement you want. See yourself living comfortably through your unemployed years – enjoy the wonderful life you have created.
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