If I could be a millionaire by the time I reach my full retirement age of 67, I'd want to have my money specifically in a Roth IRA. That way, I'll be able to take out the money without worrying about taxes. By using a CNN Money "When will you become a millionaire" calculator, I was easily able to find out how long it will take to accumulate $1 million. Starting with my $100,000 retirement savings nest egg in my early 40s, I should reach the $1 million mark by age 67 by maxing out my Roth IRA contributions and assuming an 8 percent annual return. I plan to follow the advice of current-day millionaires interviewed in a CNN article about "How I Saved $1 million." Instead of re-inventing the wheel, I might as well copy the plans that worked for people who are 10 to 20 years older than me so I can retire with at least $1 million.
Maxing out my Roth
Many successful retirement savers say they maxed out their retirement contributions. I can afford to max out my Roth IRA with annual contributions of $5,500 each year, but I don't have enough money to max out my 401(k). According to CNN, one 49-year-old accumulated $1.5 million by investing in index funds. He maxes out his 401(k) by saving $17,500 each year. Although I used to contribute 20 percent of my paycheck as well, I made a much smaller paycheck.
Keeping an affordable home
Another millionaire said she accumulated $2 million by age 63 by keeping her expenses low. She pays just $500 a month for a mortgage. My mortgage is $900 a month, which will seem lower as time passes. By paying off my mortgage in my 50s, I'll have more money I can devote to retirement. When I'm 50 and older, I am allowed to contribute an additional $1,000 in catch-up contributions to my Roth IRA.
Automating my savings
I opened my Roth IRA with a discount brokerage firm that permits online trading. Using my brokerage account, I'm able to request that money be automatically transferred from my checking account to my Roth IRA on days that coincide with my pay days. By making it automatic and spreading my contributions out, I trick myself into saving for retirement.
Starting early and owing less later
I am happy to have opened a Roth IRA account when they were first introduced in the 1990s. Because I started in my 20s, I know have $100,000 saved for retirement. I know too many senior citizens who struggle because they owe income taxes on the money they take out of regular IRA or 401(k) plans. One retired friend inherited money that sits in a regular investment account. She lives in perpetual fear of her tax bill even though she pays quarterly taxes to compensate for dividend checks and the capital gains.
One million dollars might not go as far. According to the CNN Money calculator, it will take me 24 years to reach the $1 million mark, but 34 years and 10 months to reach $1 million after inflation. At that point, I'll be 74 years old. Stretching $1 million will be easier with a Roth compared to any other retirement vehicle. My future self will thank me.
More from this contributor:
- Retirement Benefits
- Investing Education
- Roth IRA