Achieving a million-dollar retirement may seem like a daunting goal, especially since the median retirement savings for American households hovers around $87,000. However, with strategic planning and consistent effort, it's entirely possible.
Below is a rundown of steps you can take to get started on your journey to a seven-figure retirement.
Image source: Getty Images.
1. Review your net worth
Before dumping money into various accounts, it's important to peel back the layers of your finances. Begin by checking your net worth, which is the sum of all your assets -- such as checking accounts, certificates of deposit, and investment accounts -- minus your liabilities, such as credit card balances and student loan debt.
Once you have a clear picture of where you stand, you can better identify the moves to make to boost your net worth. Make it a habit to check your net worth regularly, every month or quarter, so you can track how close you are to your millionaire retirement goals.
2. Live below your means
No matter how much money you earn, it will never be enough if you consistently live above your means. By spending less than you make, you free up more money to save and invest. You also avoid unnecessary debt and high-interest payments, which can quickly erode your wealth-building opportunities.
To get a better handle on your monthly finances, start tracking your income and expenses. Look for opportunities to increase your earnings by gaining profitable skills, trim your spending, or both if you want to achieve your goals faster.
3. Beef up your emergency fund
BlackRock CEO Larry Fink is a fan of emergency funds. In his annual letter to investors, he mentioned that people with emergency savings are 70% more likely to save for the future. If you don't have an emergency fund yet, consider opening a high-yield savings account where you can regularly add money to build up your savings. If you have a steady source of income, three to six months of expenses might be a good start, but if your income is more unpredictable, you might want to aim for a larger emergency fund.
4. Explore your workplace benefits
If you have a job, your workplace benefits might be a great way to kick-start your retirement goals. For example, if your employer offers a good 401(k) plan with low fees and a matching contribution, you should at least consider contributing the minimum amount required to qualify for the match. If you want to ramp up your savings quickly, set a goal to max out your account. A workplace 401(k) plan makes it easy to put your savings on autopilot since contributions are deducted from your paycheck before it hits your account.
Also, your job may give you access to restricted stock units (RSUs), employee stock purchase plan, or stock options that can help you build wealth at work.
5. Invest beyond the workplace
If you don't have access to a workplace plan or are looking for a companion to your employer-sponsored retirement plan, consider an individual retirement account (IRA). While IRA contribution limits are much lower than 401(k) limits, time and compounding can work in your favor to supercharge your portfolio. You'll also have more flexibility to invest in your favorite assets, such as exchange-traded funds, growth stocks, and dividend-paying stocks, which can help you grow your portfolio over time.
For example, let's say you consistently invest $7,000 in a Roth IRA every year and earn roughly 10% per year, which is in line with historical averages -- you could become a millionaire in less than 30 years. However, the return your portfolio actually generates will determine how long it will take to reach your goal. Even if you don't reach a million dollars in this account alone, it can be a valuable addition to your portfolio to help you get closer to your goals.
Retirement accounts aren't the only place to invest for retirement. You could also consider other options, such as taxable brokerage accounts. There's no limit to how much you can invest, and you can withdraw your money anytime without penalty. This flexibility could be beneficial if you decide to retire before you're eligible to tap into your retirement accounts.
Keep in mind that amassing $1 million or more for retirement doesn't require you to be rich or have a six-figure income right now. It's more about staying on top of your finances and being consistent. Even if you don't end up building a million-dollar retirement, following these steps will position you well for financial security and a comfortable retirement.
