5 ways to build a million-dollar retirement fund

The following is a guest post

You are never too young to think about retirement investments. The reasoning behind this lies in the power of compound interest. As an example, this article explains how putting off retirement savings by just 10 years can cost you over half-million dollars until 65.

There are countless ways to build your retirement portfolio, depending on your income, lifestyle, the appetite for risk and resilience in saving money. Our top recommendations include:

  • opening an IRA next to your 401(k),
  • contact a broker and invest in stock market,
  • don’t ignore the cryptocurrency market,
  • automate savings,
  • don’t forget about catch-up contributions if you are over 50.

The importance of the IRA

Even if your employer generously offers a 401(k) which, by all means, you should take and match the contribution, consider also getting an IRA. Choose between the two available flavors. The first option is the traditional, tax-deductible IRA, which also grows tax-deferred until withdrawal. The Roth IRA consists of after-tax money and yields tax-free withdrawals on maturity. There is a third kind, non-deductible IRA for high-earners.

The best option of the three could be the Roth IRA since the money grows tax-free. By the power of the compound interest, by the time you take them out the fund could have multiplied a couple of times.

Stock market investments

Stocks could be the workhorse of the portfolio. Yet, the initial contact with the options could be overwhelming for a person just starting their journey into retirement planning.

First, you need to get the stocks, most conveniently through an online broker. To find the best, try the AAA Credit Guides advice on stock trading accounts for a comprehensive list of hand-picked options.

Be sure you are aware that you are signing up for an emotional rollercoaster ride dictated by the prices. You need to know your way, be confident in your choices and carefully compute trading fees, which can add up. A beginner’s mistake is to follow the heard and buy highly popular stocks, which sometimes are a fade.

High-risk, high-earnings, meet crypto

When the cryptocurrency bubble was inflated in December 2017, people used to take out some of their retirement money to buy Bitcoin and alt-coins. In fact, our own portfolio includes a small portion (3.3%) of these assets as a way to bring diversity.

The general sentiment of the authorities towards crypto is negative, and some states, like Tennessee, banned retirement funds from investing in the blockchain. Yet, it doesn’t mean that individuals can’t take advantage of these assets, even for a shorter amount of time. Due to the high risk and volatility, only keep this part under 5% of the portfolio.

Automate savings

Most of us have busy schedules, and it is easy to forget to pay something, even if, in fact, we are paying our future self. Automating savings serves three different purposes. First, it ensures that you are actually putting the money to work for you. Secondly, it relies on the out of sight, out of mind principle and simplifies your life. Most importantly, it prevents you from spending the money on immediate desires instead of thinking about the long term.

Catch-up

If you are a late bloomer in the are of saving for your retirement, the good news is that the IRS allows you to do some catching up after you reach the age of 50. Through these contributions, you can set aside an additions $6000/year for 401(k) accounts for the next 15 years or even more, ramping up to a maximum $24,500. Traditional and Roth IRAs also allow catch-ups are a maximum of $1,000/year.

These are our top choices, what other strategies do you use and are working in your case?

3 thoughts on “5 ways to build a million-dollar retirement fund

  1. To Crypto or not to Crypto. That’s been the question I’ve been asking myself for a little while now. I do like the under 5% Crypto you are suggesting here. It makes a lot of sense.

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