Start early and contribute regularly: The earlier you start saving for retirement, the more time your money has to grow. By contributing regularly, even small amounts can accumulate significantly over time due to the power of compound interest. Establishing a consistent saving habit can make a substantial difference in your retirement fund. For example, if you started at age 30 and invested $3,000 per month at an average annual return of 7%, you would approach the $4 million mark by your late 60s.
Maximize employer contributions: As your earnings increase, so should your contributions. So take full advantage of any employer-sponsored retirement plans, such as a 401(k), especially if your employer offers matching contributions. This is essentially free money to boost your retirement savings. Make sure that you contribute enough to get the full match because missing out is like leaving money on the table.
Use tax-efficient investment strategies: Many people minimize the tax burden on their investments by putting money into tax-advantaged accounts like IRAs and 401(k)s. You can also consider other tax-efficient investments like municipal bonds and certain ETFs or mutual funds. Additionally, strategies like tax-loss harvesting can help preserve more of your returns.
Diversify your investments: Diversification is key to managing risk in your retirement portfolio. By diversifying your investments across different asset classes like stocks, bonds and real estate, you can protect your savings from market volatility.
Delay your Social Security benefits. Another way to help close the gap on a $4 million nest egg is to delay your retirement. Each year you delay claiming Social Security benefits, up until age 70, your benefits grow by about 8%. This increase can substantially boost your lifetime income, especially if you live well into your later years. And if you have a partner, coordinating this strategy with your spouse’s benefits could boost your household’s financial security even further.