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Want to retire as a millionaire? It’s easier than you’d think if you just follow these 10 tips to grow your retirement savings over $1,000,000.
How many of these 10 tips are you already doing? Better question: how many of them can you start today?!
1. Start Now
The single best thing you can do to grow your retirement savings is to start early. Those of you who’ve followed us for a while know we’re constantly talking about compound interest around here. See, compound interest is like magic: you make money on the money your money is making! Give that a sec to sink in. It means your investments grow exponentially the more time you give them.
Compound interest is how you can retire as a millionaire by only saving $182,880. But this magic needs time to work. The best time to start saving for retirement is yesterday. The 2nd best time is right now.
To get started, check out our post, 3 Easy Steps to the Retirement of Your Dreams.
2. Automate
Automation is my personal secret weapon in the fight for a solid financial future. I can’t trust myself to 1) remember to move money to my retirement account or 2) actually do it when I’d way rather spend the money on a trip somewhere cool.
So how do I make sure I save for retirement? I take away my options so I literally can’t fail to save money. I created an automatic transfer so I never even see some of my money, let alone spend it.
On payday, 10% of my income is automatically whisked away to my retirement account. I set this up during my first week of work, so I’ve been used to living without that money. Can’t miss what you never had!
And you can do this with your emergency fund savings until you have a 3-month cushion of savings. Then you can do this with your dream fund so you’ll be growing your money to make your dreams happen without even noticing.Set it and forget it!
It’s fool-proof!
3. Don’t Touch It
If you pull some money out of your retirement account, you’re not just losing that money, but also all the interest it could have earned.
On top of that loss, you may also have to pay penalties if you pull the money out before retirement age. There are a few allowable reasons to “borrow” some money from your retirement account without penalty (like a first-time home purchase or paying for some of your higher education). But the general rule of thumb is to just to leave it alone to do its thing.
4. Take Advantage of Contribution Matching
If your employer offers a retirement account with “contribution matching”, you need to sign up for that! Contribution matching means your employer will deposit FREE MONEY in your retirement account to match your contributions up to a certain point. And it’s actually pretty common practice in the US.
They may only match you up to 3% of your income, but who cares? Free Money! There’s no reason to leave it on the table. Make sure you’re saving at least enough to take full advantage of any contribution matching.
5. Remember to Take Money from Employer-Sponsored Accounts With You When You Leave
When you change jobs, make sure you take any employer-sponsored retirement account money with you. Roll your 401(k) from your previous employer into an IRA when you leave. And open a new 401(k) with your new employer. Every time you leave a job, roll that 401(k) into your existing IRA to keep that compound interest working.
6. Roll More Money Into Your Retirement Account
To super-charge your retirement savings, roll more money into your retirement account. Raises are a great way to increase contributions. You’re already used to living without that extra money, so you won’t miss it when you roll it directly to your retirement.
Same goes for amounts you were paying toward debt (like student loans!). You’ve been paying a few hundred dollars every month, and with the debt paid off, that money is available to go toward another good cause. Like retirement.
7. Stick with Index Funds
When you set up your retirement account, you need to decide which investments you want your retirement savings invested in. And index funds are the way to go. Index funds are like sampler baskets of a bunch of different stocks or bonds, so your portfolio is automatically diversified. It’s way less risky than investing in just one company’s stock because individual stocks are super unpredictable.
Now, index funds aren’t actively managed; they just follow an index (like the S&P 500 for example). Study after study has shown that index funds consistently out-perform mutual funds, which are actively managed by a fund manager. This is especially important because index funds cost so much less than mutual funds. Fees are always changing, but index fund fees are usually around 0.11% of the fund’s value, and mutual fund fees are usually around 0.84%.
8. Start Aggressive, Then Go Conservative
Here’s a good strategy for when you’re deciding which Index Funds to invest in.
Start with most of your money in aggressive growth funds (stock-based funds), then move more conservative as you get closer to retirement (bond-based funds).
See, the younger you are, the more time you have to ride the ups and downs of the stock market, so you can start with aggressive growth investments that are a little riskier but have higher potential rewards. As you age, you want to start shifting your asset mix toward the conservative side because you need to protect your investments to make sure your money is still available when you need to access it.
9. Set Up Automatic Rebalancing
Ok, so as your investments all perform differently, your asset mix will skew toward the highest performing assets, but those might also be the riskiest. Automatic rebalancing routinely adjusts your investments to make sure they match your desired asset mix.
You can opt for automatic rebalancing when you set up your retirement account.
10. Don’t Check Performance Too Often
The market naturally fluctuates, and many newbies mistakenly try to “correct” their portfolio during every little decline. Not only will this drive you crazy, but it’s expensive to constantly trade funds, and you’re usually far better off in the long-run letting your investments ride. I only check on my investments once a year during my annual financial check-up, and I usually only end up making investment changes every 2-5 years.
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