In 2022, data from the Federal Reserve indicated that the typical American between the ages of 64 and 74 had around $609,000 saved for retirement. However, you might have more ambitious objectives, such as retiring with a Roth IRA valued at $1 million.
A substantial retirement fund can make your dream retirement a reality. If you’re keen on expanding your Roth IRA to reach that $1 million milestone, consider these strategies to guide you.
1. Leverage Time as Your Greatest Ally
Although it’s feasible to begin retirement planning later in life and still accumulate a decent sum, the earlier you start investing, the better your chances of achieving your savings target. Therefore, it’s advisable to begin setting aside money for retirement in your 20s or 30s. Postponing until your 40s or 50s might ease cash flow constraints initially, but you’ll miss out on crucial years of compounded growth in your Roth IRA.
2. Harness Stocks to Propel Your Savings
Reaching $1 million in your Roth IRA doesn’t require contributing that entire amount. By selecting the right investments, you could achieve this goal with significantly less out-of-pocket contribution. The appealing aspect of Roth IRA earnings is that they are tax-free. While your retirement fund could be diversified across various asset classes, stocks remain a strong choice due to their historically robust long-term performance. Although a stock-heavy portfolio may not guarantee annual growth, investing in stocks over multiple decades is likely to yield significant returns.
3. Outperforming the Market Isn’t Necessary
Some investors aim to outperform the market by curating a portfolio that surpasses broad indexes like the S&P 500. While it’s commendable to pursue this goal through diligent stock research and ongoing strategy evaluation, there is a simpler path to achieving a $1 million Roth IRA. Instead of picking individual stocks, consider investing in a total stock market ETF (exchange-traded fund) or an S&P 500 ETF. These options provide immediate diversification while facilitating growth.
The Numbers Add Up
Even with these recommendations, you might doubt your ability to reach the $1 million retirement savings mark. Imagine this scenario: You start setting aside $325 monthly for retirement at age 27, which is not necessarily at the beginning of your career but still relatively early. You maintain these contributions to your Roth IRA until age 67, aligning with the full retirement age for Social Security for those born in 1960 or later. Over this 40-year span, your portfolio achieves an average annual return of 8%, slightly below the market average. In total, you will have accumulated just over $1 million. Indeed. So, if retiring as a millionaire appeals to you, make Roth IRA contributions a priority early on, invest consistently in stocks, and embrace the simplicity of the process.
