Want to Become a 401(K) Millionaire? More and More People Are Doing It.

401(K) Millionaire

Becoming a 401(K) millionaire is possible. It’s not necessarily easy. However, more and more people are succeeding.

What is a 401(K) Millionaire?

If you’ve never heard of the time before then you might wonder exactly what it means to be a 401(K) millionaire. It isn’t complicated. In fact, it’s exactly as the name suggests. A 401(K) millionaire is someone who has at least $1 million in their retirement account.

The Number of 401(K) Millionaires Is on the Rise

According to CNBC, the number of 401(K) millionaires increased by 35% in the first quarter of 2019 (as compared to the previous year). The main reason for this is because of the large number of baby boomers who are hitting that seven figure mark. The average 401(K) millionaire is 60 years old.

How to Become a 401(K) Millionaire

If you want to become a 401(K) millionaire then you have to get a grip on your money immediately. The younger you are when you start setting that money aside, the more likely it is you’ll reach that seven figure retirement target. That said, here are some key tips that anyone can use to increase their 401(k) savings.

Max Out Your Contributions

The most important thing that you can do is to contribute as much as you’re allowed to contribute to your 401(k). Your allowed employee contribution amount changes from year to year. In 2019, you can contribute $19,000.

However, if you’re over the age of 50, then you’re allowed to contribute a little bit more so that you can “catch up.” In 2019, you’re allowed to contribute $6000 extra.

Remember that the numbers tend to increase every year so always check what the latest possibilities are.

Moreover, make sure that you’re maximizing employer contributions. Take advantage of any options you have at work for your employer to contribute up to the maximum amount. In 2019, the maximum employer contribution is $37,000. Go talk to HR today.

Make Smart Investments

When investing your money, it’s important to consider your age and how long it will be before you retire. If you’re young, then invest in equity-based mutual funds. They offer higher risk but bigger reward. Hang on through the ups and downs.

However, as you get older and approach retirement age, it’s time to switch to more conservative investments. That’s when you want to put more money into cash and bonds.

One smart option is to invest your 401(k) money into a target-date fund. You set the target retirement date. Then professionals manage your investments for you with that goal in mind. They’ll follow the same rules as above (riskier investments early on and more conservative ones later) so that you don’t have to worry about the details so much.

Don’t Count Yourself Out

You don’t have to be rich in order to become a 401(K) millionaire. Although it’s best if you start young, don’t count yourself out if you’re older. Even if you don’t reach that seven figure target, aiming to do so can help you maximize your retirement income.

Know What You Need to Save To Become a Retired Millionaire

Use a millionaire calculator in order to get a realistic picture of what it would take for you to have $1 million or more at retirement. You’ll enter:

  • Current age
  • Target retirement age
  • Amount currently invested
  • Savings per month
  • Expected rate of return
  • Expected inflation rate

This gives you your expected savings at retirement. However, you can play around with the “savings per month” number until your expected savings reaches $1 million. Then you know how much you need to save to reach that million mark. While this doesn’t specifically determine your 401(k) amount, it gives you a good idea of how much other savings you’ll have to add to your 401(k) to become a millionaire at retirement.

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Want to Retire Early? Be Aware of These 5 Financial Risks.

early retirement

Many people want to take early retirement. If you’ve saved up enough money then why not? Well, first of all, you have to be sure that you’ve saved up enough money. Many people think that they have planned accordingly only to realize that there are a lot of financial downsides to early retirement.

Here are five of the biggest money problems that people tend to face in early retirement:

1. Failing to Plan Properly for Taxes

Did you know that many people are in a higher tax bracket at retirement than for much of their working career? This means that you’re likely to owe more at tax time than you’re accustomed to. Moreover, once you start taking out your 401K money, you’ll have to pay taxes on that.

Therefore, taxes in retirement can be pricey. If you haven’t planned ahead, then you’re going to have to readjust for that reality. If you retire early, then you’ll have to start figuring that out years ahead of your peers.

2. Years and Years of Spending Ahead

That brings us to the next key point. If you retire early then chances are that you’ll have more years of retirement. Therefore, you’ll have to make your retirement income stretch. If you retire at 55 instead of 65, that’s ten less years of earning and ten more years relying on retirement income.

3. Where Will Your Money Come From?

You won’t even be able to access some of your retirement funds, such as your 401K, until you hit a certain age. Therefore, you’ll have to figure out where you’re money is going to come from prior to that. If you haven’t planned in advance, then you can easily find yourself overspending in those early years. If you tap into your savings or refinance your home to cover those costs then you’ll have to find some way to make up for it later.

4. What About Healthcare?

Just because you retire early doesn’t mean that you can access Medicaid early. Therefore, you’re going to have to figure out how to pay for health insurance until you reach regular retirement age. If you’re not working anymore then you can’t count on employer rates. Your health insurance could get very expensive very quickly.

Even though you’ve retired early, you’re old enough that you can’t risk going without healthcare. If anything were to happen, your care costs would be exorbitant. Therefore, you do have to pay out of pocket for health insurance. How are you planning to do that if you’ve retired early?

5. You Don’t Maximize Your Retirement Benefits

If you take early retirement then you may not make as much money post-retirement as you could have. For example, if you have a job that pays a pension, the pension amount might be significantly lower if you retire early. Likewise, if you start access Social Security early (“early” currently means age 62) then you won’t get as much as if you’d waited. So, you start using the money sooner and yet you’re getting less of it than you could have. Waiting to retire could be well worth it.

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When to Invest in TreasuryDirect.Gov: Savings Bonds, Notes, and More

treasurydirect.gov

TreasuryDirect.gov is one of the simplest tools that you can use to park small or large amounts of cash. You can make your money work for you. And yet, many people have overlooked this tool. If you’re not familiar with it or haven’t made the most of it, yet, then you might want to take a gander. There’s a good chance it’s a smart tool for you to use to diversify your investments and boost your savings.

What is TreasuryDirect.gov?

TreasuryDirect.gov is a website that allows you to quickly begin investing your money. You can use it to purchase:

  • Treasury Bills
  • Treasury Notes
  • Floating Rate Notes
  • Treasury Bonds
  • Saving Bonds
  • Treasury Inflation-Protected Securities (TIPS)

The site cuts out the middle man so that you make the purchase directly from the government.

It’s Right For You If You Are A Beginner Investor

If you are new to investing, then this is a great place to start. Once you’ve put aside some emergency funds in a savings account and maxed out your retirement contributions, you need to take a next step. Treasury investments are an easy and smart next step. They are backed by the government, so they are quite secure. Here are some other reasons that beginner investors like them:

  • You earn more money than you would with a regular savings account but the risk is not much higher.
  • There are several options for investing so you get your feet wet with trying out different choices.
  • There are no fees, and you might not even have to pay taxes on the interest you are. It’s financially smart.
  • Plus you can start investing with just small amounts of money. You can get bonds with as little as $25.

If You May Need Access To Your Money Then It’s A Good Time to Invest

One of the reasons that people keep large sums of money in savings is because of the fear that they’ll need that cash. You may have a big expense planned, such as buying a house. Or perhaps you work in the gig economy and aren’t sure how long your income will stay steady. Either way, you don’t want to get your money all tied up for years in long-term investments. So you stick it in savings.

However you don’t earn much interest with a regular savings account. You get the security of being able to always access your funds but you lose out on growing your money. TreasuryDirect.gov investments offer you a little bit more of a financial gain. However, your money isn’t tied up for long periods of time. You can make investing choices through the site that allow you to easily get your money out without penalties.

TreasuryDirect.Gov is Good if You Have a Lot of Cash to Park

Perhaps you just got a big inheritance. Wherever it came from, you have a big sum of cash. You want to earn a decent return on it. However, you don’t want to get too hard at tax time. TreasuryDirect is a good answer. Oftentimes the investments don’t require you to pay taxes, particularly state taxes, so you get to keep what you earn. The more money you invest, the more money you’ll get back. So even though you can start these accounts with as little as $25, they’re a great choice for people with significantly more money to invest.

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