Truth be told, achieving a million-dollar retirement account can seem out of reach if you don't know many people who have achieved this milestone. It might seem even more daunting if you're trying to reach that goal in a traditional or Roth individual retirement account (IRA), where the contribution limits are only $7,000 for those under 50 in 2024.
However, time and consistency can work wonders on your retirement portfolio, much like they do when you're trying to master a skill. If you have no idea where to start or how to get closer to the finish line, here are a few steps I'm taking to slam-dunk my goals before retirement.
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Keep my finances in check
It's easier to contribute to an IRA when your finances are in good shape. For me, that means limiting my exposure to high-interest debt and not living above my means. I plan to monitor my net worth, income, and expenses monthly to stay on track.
If you're in a financial rut, you can still progress toward your IRA goals by reducing your debt and increasing your savings. Build an emergency fund with three to six months' worth of expenses to avoid dipping into your retirement savings for unexpected costs.
Maximize my contributions
Every year, the IRS allows you to tuck away a certain amount of money into an IRA. The contribution limits for both a traditional and Roth IRA are the same, allowing you to contribute up to $7,000 if you're under 50 and up to $8,000 if you're older in 2024. You can only make direct contributions to a Roth IRA if your income is under the annual limit , so you'll have to opt for a traditional IRA if your income exceeds that.
No matter which account I qualify for each year, my goal is to contribute the maximum amount . I didn't start off contributing the max to those accounts, but here are a few things I've started doing to make it easier to crush my goals:
- Plan ahead : Before the year starts, I look at the new contribution limits and calculate how much I need to contribute every month for 12 months to achieve my goal.
- Adjust accordingly : If I don't start the year contributing to my IRA, that's fine. I have until April 15 (the tax filing deadline) of the following year to contribute to my IRA, so if I need extra time, I use the first four months of the following year to reach my goal.
- Automate contributions : I schedule recurring contributions from my checking account to my IRA every week so that my savings happen automatically, allowing me to focus my time and energy on other things.
Invest wisely
I'm willing to put in the work and research my investments, so I don't shy away from individual stocks that provide growth and dividends. However, I'll also invest in funds that track the S&P 500 to take some of the pressure off my hand-picked stocks.
What you invest in will determine how much your investments will grow. Take a look at how your IRA balance could grow over time if you commit to contributing $7,000 annually, assuming an average return of 8% to 12%, which aligns with historical averages . Contribution limits typically increase over time, so you might reach your goal sooner if you maximize your contributions each year as they rise, just like I plan to do.
$7,000 Invested Annually For: | Growing at 8% | Growing at 10% | Growing at 12% |
|---|
10 years | $109,518 | $122,718 | $137,582 |
20 years | $345,960 | $441,017 | 564,891 |
30 years | $856,421 | $1,266,604 | $1,892,048 |
40 years | $1,958,467 | $3,407,963 | $6,013,997 |
Data source: Author calculations.
All told, there's nothing really spectacular about my plan. I just plan to keep my finances in check, automate my contributions, and monitor my investments to get closer to my goal. Even if my traditional and Roth IRA plans completely flop and investment returns aren't what I anticipated, I can lean on my SEP (Simplified Employee Pension Plan) IRA to give my retirement savings a boost.
I haven't hit 40 years old yet, so I have at least 30 more years to work toward my goals. But even if you're older, you can still get closer to your goal by taking the same steps. While tucking money into an IRA isn't a speedy way to a millionaire retirement, it's a great way to develop the discipline needed for long-term financial success.
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