One relatively painless and fastest way to make one million dollars is by investing in a retirement 401(k) plan.
A 401(k) plan is one in which you contribute a certain amount of your paycheck to a retirement account that your employer sets up with an asset management firm or a financial institution like Vanguard or Fidelity. What you may not know is that you can easily accumulate one million dollars.
For example, if you contribute $19,000 per year in your account for 30 years, assuming an annual return of 7%, you will have over one million dollars sitting in your account.
But how do you reach one million dollars? Obviously, this is easier said than done. Making a million dollars requires careful planning and discipline. So it’s essential to consult with a financial advisor in your area to help you set a financial plan to reach the 1 million dollars goal.
Follow the steps below to learn how to make a million dollars.
Here are some tips to accumulate one million dollars.
Tip No. 1: Start contributing as early as possible.
As you may have heard many times, the earlier you start investing whether in the stock market or in a high yield savings account, the better. It is so, thanks to the power of compounding interest.
The same is true for investing in your retirement 401k account. For instance, if you are 25 years old and you want to retire at age 65 with one million dollars and earning a 7% annual rate, you will have to save $405 each month to reach $1,006,635.
But if you are 35 years old, you will have to contribute more like $855 to reach one million dollars. So start saving for retirement as early as possible to give your money time to grow.
Tip No. 2: Max out your 401(k) Contributions.
Currently, the maximum amount of money you can contribute annually to your 401k plan is $19,000, assuming you’re under 50 years old. If you’re over 50, you can put in an additional $6,000.
Maxing out your 401k plan is hard, especially if you don’t earn a decent salary. After all, you have to make sure your basic needs (such as food, rent or mortgage payment, health care) are covered.
But if you’re able to max out your 401k every year, you will certainly make one million dollars by the time you retire.
Tip No. 3: Take advantage of your employer’s match.
The example above (the one million dollars) did not take into account any employer’s match or a change to the contribution limits.
If your employer offers a match to your 401k, you will reach that one million dollars mark much quicker. Your employer can match dollar for dollar or 50 cents each dollar you pay in.
In other words, for every dollar you contribute, your employer is giving you free money. So taking advantage of your employer’s match helps grow your money faster.
Feeling Overwhelmed With Your Finances?, You have options and there are steps you can take yourself. But if you feel you need a bit more guidance, simply speak with a financial advisor. SmartAsset’s free tool matches you with fiduciary advisors in your area in 5 minutes. If you are ready to meet your goals, get started with Smart Asset today.
Tip No. 4: Be consistent.
In order to grow your 401k account to one million dollars in 30 years or less, you should be consistent. That means, max it out every year.
Tip No. 5: Be in it for the long haul.
In order to accumulate one million dollars in your 401k account, you have to keep contributing even if you change jobs. Most 401k millionaires stayed in for 30+ years.
Tip No. 6: Avoid taking out a 401k loan.
Most employers with a 401k plan allow employees to take out a 401k loan. Whether you need that loan to purchase a primary residence, you are within your rights to receive the loan.
A 401k loan is is different from a bank loan or mortgage loan, simply because there is no lender involved, there no application, no credit checks and all that good stuff.
It is simply a loan where you can withdraw a certain amount of money on a tax free basis, provided that you repay that money according to the rules set by your 401k plan.
However, a loan from your 401k can prevent you from reaching the one million dollars mark. The money you take out is not invested, which means your account won’t grow as it would have if you hadn’t taken it out the loan.
Tip No. 7: Want to make one million dollars faster? Invest aggressively.
If you are still young, your portfolio shouldn’t account for more than 10% bonds. More bonds could prevent long term growth. Instead, you should invest aggressively in stocks, meaning your portfolio should be 90% stocks and 10% bonds.
In conclusion, it is not that hard to reach one million dollars in your 401k. It requires diligence and discipline.
More on retirement
- Early Retirement: 7 Steps to Retire in Your 40’s.
- How to Grow Your 401k Account Faster.
- 9 Easy and Painless Ways to Save for Retirement.
- 5 Reasons Why You Will Retire Broke.
Want to make one million dollars? Work with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your saving goals Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
Additional Money Tips:
1. If you’re thinking of buying a house, estimate how much you may be able to borrow. Get pre-qualified.
2. Open a high yield savings account. Having an online, high yield savings account allows you to save money and earn over 15 times the national average in interest. Check out CIT Bank online savings account, which has a 2.45% APY. Learn more.