How to save a million dollars in retirement

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1 million dollars - an impressive amount. This is about 5 times more than the average American can earn in retirement. If you want to earn $ 1 million for retirement, then you need to develop a strategy. We offer 10 steps that can help you.

1. The sooner you start, the better

The sooner you start saving for retirement, the higher your chances of saving $ 1 million. If we assume that your contribution will grow at an average rate of 8% per year, then you will need to postpone $ 285 per month, provided that you have 40 years of active work ahead of your retirement. If you start deferring for 20 years before you retire, then you will have to save about $ 1700 per month, if 10 years are $ 5500 per month.

2. Take advantage of all the "free money" that you offer

Many companies have a compensation package called 401 (K). This is the most popular pension plan (accumulative pension account) of a private pension system in the USA. The essence of the program lies in the fact that you need to save some part of the money from the salary. The employer can also pay this amount for you. Depending on the company, the amount of the contribution can range from 50% to 100%.

3. Automate the process

Make sure that money in 401 (K) is automatically debited. You can set up the system so that a certain amount will be automatically sent to your savings account with each salary received.

4. Increase the amount of money deposited each time you receive a promotion.

If you can pay bills and cover expenses from the salary received, then technically, any salary increase will not affect the quality of life. The amount of the increase you can postpone to the account of the future pension.

5. Be prepared for fluctuations in the financial market

Be prepared for the fact that the financial market suffers ups and downs. But do not stop investing. Investing will help you quickly collect the necessary amount. For example, during the Great Recession, those who sold their shares lost about 50%. However, those who waited for 2009 of the year earned about 250% and more than returned the lost money. Even more earned those who bought securities during the recession.

6. Be rational when you invest

Now the stock market promises annual yield of securities at about 9,5%, however, it is unknown how long this rate will be valid. Therefore, invest wisely, based on the calculation that the securities will bring income lower than you expect.

7. Invest when you spend money

In the short term, stocks are risky due to their volatility. In the long run, bonds and cash are risky because they offer lower returns than stocks, and thus are difficult to sustain inflation. At the same time, if you intend to spend money over the next 5 years, then it is wise to invest in bonds. If you choose investments, you choose a long-term path of accumulation, and you can receive much more rewards than from bonds.

8. Follow the financial market

If you do not have the talent, time and patience to track the market for investment stocks, you can invest in a mutual fund of indices or ETFs. You will get the same money by spending less of your time.

9. Use tax breaks

Tax preferential retirement accounts, such as IRA and 401 (k), can help you save a million much faster. All money invested in these accounts grows with a tax deferment, which allows it to consolidate more funds in a shorter time.

10. Monitor progress towards the accumulation of a million

Saving a million dollars for retirement is a fairly ambitious and long-term goal. You can spend several decades to achieve it. During this time, a lot can happen in the financial market. If you check the status of your accumulated funds several times a year, you will be able to respond more quickly to changes in the market and make the necessary adjustments. Track rate changes, investment volatility, and the amount of time left until you retire. Changing your course in time will help you avoid unnecessary risks.

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