How to be a millionaire when you retire

By Meghan Rozell

Even with a modest income, a sizable retirement is possible and the claim to the title of millionaire is completely possible.  

Here are a few things to consider to help you get to that six figure mark by your sixties. 

Financial Goals

With just 10-15% of your income, you can make a considerable investment with exciting returns. One key is firmly committing to the number you will invest each year or month. 

It’s a good idea to decide on a percentage rather than a simple number. As your income increases, so will the dollar value of your contribution toward your retirement investment.

Another crucial element to growing your investment is time. The more time your money has to accumulate compound interest, the larger your return will be when you’re ready to pull out your earnings. 

Getting started in your twenties and thirties can make all the difference in your retirement fund. If you don’t have time on your side, you can increase your investment contribution number to make up for some of those lost years.

Wait, What's Compound Interest?

Simply put, compound interest is interest earned on both the principal investment and on accrued interest. Compound interest, along with time, are the most important elements in seeing significant returns on your investments. 

This interest can be calculated annually, quarterly, or even monthly depending on where you decide to invest and how you manage your investments.

Still Confused?

Let’s explore this example with a Roth IRA, which typically takes only $1,000 to begin and for the sake of our example, has a 5% annual compound interest on investments. 

Contributing 10% of a $50,000 annual salary, in just ten years the return is over $88,000. In 40 years of investing with the same ten percent, the return is closer to that million dollar mark at over $900,000.

It’s simple to see that starting early makes all the difference and so does the annual contribution of salary. The more money you add and the more time you have to compound, the greater your investment can grow.

Find The Right Investment

An IRA is just one example of an investment that can aid in long term return. If your employer offers a 401(k), the returns can be even greater and sometimes your employer will match your investments. There is also stock investing with a mutual fund and annuities which can be great options to consider.

Commit to an annual investment number into your retirement, pick a solid investment plan that maximizes compound interest return, and watch your investment grow.

With enough planning, you could see some exceptionally nice numbers and you may just be able to stake claim to the millionaire title, too.

Meghan Rozell is a personal finance writer.

Written on April 30, 2015

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