Want to become a millionaire at 62? Here’s how your 401 (k) can get you there

Wand retire a millionaire? Invest in your 401 (k) account might be the best and easiest approach to get there. That’s because a 401 (k) offers some important benefits that other accounts don’t, including the ability to invest with pre-tax dollars as well as the ability to earn an employer if your business offers one.

So how can you make sure your 401 (k) makes you a millionaire at 62 (one of the most popular ages to retire). Here are the steps to follow.

Image source: Getty Images.

1. Set a monthly investment goal based on your age

If you want to become a retired millionaire, you have to put enough money in your 401 (k) to do so. How many do you need? It depends on your age when you start investing.

If you start to do 401 (k) contributions at age 20 and make them steadily for 42 years, investing just over $ 230 per month would make you a millionaire by target date (assuming an average annual rate of return of 8%). But if you don’t start contributing before age 55, you will need to set aside about $ 8,500 per month to become a millionaire on time.

There is a lot of retirement calculators you can find online that will tell you how much you need to invest to save $ 1 million by 62 based on your current age. Find one and figure out what your monthly goal should be.

2. Find out about your employer’s matching rules.

Many employees with 401 (k) plans are eligible for an employer match. This means that the company you work for makes contributions when you do. The rules of operation vary. For example, some employers will match 50% of contributions up to a certain percentage of your salary, while others will equal 100%.

If your employer invests immediately – meaning the money is yours as soon as your employer deposits it – you can factor that amount into determining how much you personally need to invest every month.

However, in some cases the money is not immediately acquired. If so, you may not necessarily be able to count on being able to keep the money because there is always a chance that you will have to leave before your employer’s contributions definitely become yours. You may want to increase your own savings goals under these circumstances so that you don’t end up with a shortfall if it turns out you don’t end up acquiring.

3. Set up automatic contributions

It’s usually easy enough to sign up so that the contributions are taken directly from your paycheck and put into your 401 (k). Speak to your plan administrator or your company’s human resources department to find out how.

In most cases, contributions are made as a percentage of your income (eg 10%). This may be better than setting a lump sum, as your contributions will automatically increase based on your income. But you want to make sure, no matter what percentage of your income you put in, that the dollar amount is enough to reach a goal of $ 1 million by the desired age of 62 (you should have figured out what is that amount in step 1).

4. Invest wisely

Most 401 (k) accounts offer a limited pool of investment options, usually made up of index funds. Research options carefully to make sure you choose investments with minimal fees that are right for your stage in life.

As you get older, you’ll want to make your wallet more conservative. But don’t start too cautiously and put too little money on the stock market, or becoming a millionaire will become really difficult.

If you contribute enough money, take advantage of correspondence from your employer, and make wise investment choices, there is a good chance that your 401 (k) could make you a millionaire, especially since the contributions you make. donations are made with pre-tax dollars, so the government is essentially subsidizing your efforts to save.

The $ 16,728 Social Security bonus that most retirees completely ignore
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “social security secrets” could help you boost your retirement income. For example: a simple tip could net you up to $ 16,728 more … every year! Once you’ve learned how to maximize your Social Security benefits, we believe you can retire with confidence with the peace of mind we all seek. Just click here to find out how to learn more about these strategies..

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Karren Campbell

Check Also

Trump Organization CFO banking records subpoenaed

Dive brief: As part of the investigation into former President Donald Trump and the finances …

Leave a Reply

Your email address will not be published.