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How to Retire a Millionaire | personal finance

(Chuck Saletta)

With S&P 500 swinging on the edge of a bear market and some companies with high growth prospects fell more than 90%Reaching millionaire status when you retire may seem like a crazy goal. In reality, most bear markets are sowing the seeds for the next big recovery. If you do not believe that this collapse will bring the end of capitalism and the entrepreneurial spirit, this collapse is very likely to happen.

This is a great time to put your plan into action to reach millionaire status when you retire – now that the market has dropped sharply from its highs. After all, every dollar you invest today is buying far more stocks than near market highs. More shares means a larger base that participates directly in any subsequent recovery. This could actually end accelerate Your path to millionaire status.

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Still, building a nest egg that big is a time-consuming journey. While there are no guarantees left in the market, there is a simple four-step, time-tested approach that can give anyone but a great chance at earning a millionaire retirement.

Image source: Getty Images.

Step 1: Get your own financial house in order

The biggest challenge with bear markets is that they often come with job losses. If your bills don’t go away just because you have a job and all your money is in stocks, you may have to sell near market lows just to make a living. This won’t help you on your way to millionaire status and may instead set you back.

One of the essential tools in your arsenal is the emergency fund. With three to six months of living expenses paid in cash, you can better deal with short-term cuts to your income. With interest rates well below inflation, you don’t want to more it saves a lot, but somewhere in that three to six month range it at least gives you some buffer to help you make adjustments.

Also, getting your debt under control is an important part of being able to invest successfully. You don’t need to be completely debt free to invest, but your debts must be reasonable. Reasonable debt is low-interest debt that you can point to a net worth for your future because you have that debt. Also, your overall payout levels should be low enough that you can easily afford them and still have breathing room in your budget each month.

If you’re not there yet, the debt avalanche approach, The most effective way to pay off debt. To use, sort your debts from highest to lowest interest rate. Pay the minimum on everything but your highest-interest debt. Pay as much as you can on this top-rate loan above the minimum until it’s paid off. After the payment is made, take the money you paid him and add it to the amount you deposited. new debt with the highest interest rate.

Continue until your total debt load reaches this reasonable level.

Step 2: Take advantage of all the free money you can

If you find a match at work to contribute to your 401(k), invest enough money in this plan to maximize your match hands down the initial investment you need to make. Adding your boss’ money to yourself makes it a lot more compound on your behalf.

Once your match is maximized, it usually makes sense to continue contributing to your 401(k) as long as it doesn’t charge high fees and offer strong index funds with low expense ratios. If you are under 50, you can usually contribute up to $20,500 to your account in 2022. If you are over 50, this amount increases to $27,000.

In addition to any matches, 401(k) plans also offer you tax benefits. On any qualifying 401(k), your money compound tax is deferred for as long as it is in the plan. In Roth 401(k) type plans, you can keep the money completely tax-free at retirement. In traditional 401(k) plans, you receive immediate tax withholding on the money you contribute, but it is taxed when you withdraw the money.

Between money from your boss and your tax benefits, 401(k)-style plans offer great ways to build wealth. You can also contribute to an IRA if you have maxed out your 401(k) plan, the cost of joining is too high, or you don’t have a suitable plan. IRAs also come in Traditional and Roth varieties, but with lower contribution limits. In 2022, you can contribute up to $6,000 if you are under 50 and up to $7,000 if you are over 50.

Step 3: Invest in broad stock market indices

If you don’t want to get too involved in your investment, the easiest way to build wealth over time is to put every contribution into a low-cost, large stock index fund. This simple approach tends to beat the vast majority of Wall Street’s professional money managers available over time and anyone Suitable for investing in the US stock market.

Step 4: Keep going

The chart below shows how many years it will take from zero to reach $1 million, depending on how much money you can save each month and how much returns you generate along the way.

Monthly Investment

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns

$2,833

13.8

15.2

17.0

19.5

$2,208

15.7

17.4

19.8

23.0

1500$

18.9

21.3

24.5

29.3

$1000 dollars

22.4

25.5

29.9

36.7

$500 dollars

28.8

33.4

40.1

51.0

$300

33.7

39.4

48.0

62.5

That $2,833 number is the number that someone 50 or older who maxes out both their 401(k) and IRA can set aside the deferred tax. $2,208 applies to under 50s. Even $300 a month – about $10 a day – can provide a reasonable avenue to millionaire status when you retire if you’re not able to invest that much. . If you can’t reach your target savings rate right away, start with what you can and increase your savings as much as possible.

i will start today

As the chart shows, the more time you have until you retire, the less socks you need to devote each month to making a comfortable nest egg until you get there. The earlier you start, the more valuable time you have to implement your plan. So get started today and give yourself the best chance you can have outside of clinching a millionaire retirement.

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Chuck Saletta does not hold a position in any of the aforementioned stocks. Motley Fool has no positions in any of the stocks mentioned. A Motley Fool disclosure policy.

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