Can you retire a millionaire with just $25 a day? | Smart Change: Personal Finance
(Charlene Reinhart, CPA)
If you’re aiming for millionaire status before retirement, it may be possible if you start now. The best part is that you may not even need thousands of dollars to make progress toward your goals. You can start with as little as $25 a day, and start plotting your way toward the million dollar mark now.
Below, we’ll break down the numbers that can get you into the millionaire mark without draining your pockets.
Getting Started with a Roth IRA
There are many vehicles you can use to build your $1 million portfolio, but we’ll focus on a Roth IRA (Individual Retirement Account). Entry barriers are low and there are no age restrictions. Even a 12-year-old can get a Roth IRA as long as they have qualifying, earned income and meet the income requirements.
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A Roth IRA is a private retirement account because you are allowed to contribute after-tax dollars. This means you won’t have to worry about taxes later in life, and you’ll never have to calculate required minimum distributions.
The downside is that you can only contribute up to $6000 if you are under 50 in 2022. If you contribute the maximum amount for 40 years, you will only have $240,000 in savings. We’ll show you how to get closer to the million dollar mark by investing your contributions later.
Start your Millionaire Plan with $25
If you’re wondering how you can get rid of at least $6000 in a Roth IRA each year, here’s a simple plan to make it more rewarding.
- Step 1: Start with $25 and calculate how much you earn each day to see how much money you need to save. Let’s say you earn $250 a day. This means that you need to allocate 10% of your earnings to your $1 million goals.
- Step 2: Automate your savings. You can stockpile $25 a day for five days. That’s $125 a week. Set up recurring money transfers from your checking account to your Roth IRA. After four weeks, you will have $500 in your Roth IRA.
- Step 3: After 12 months of continuous savings, you will have $6,000 hidden. If you have to defer contributions for a month, don’t worry. You will have until tax day the following year to contribute to the previous year’s Roth IRA.
Turn your Roth IRA contributions into profitable investments
You will not be able to reach $1 million in your Roth IRA simply by saving the maximum amount each year in a place where it will not earn a return. Even if you had a Roth IRA at age three and continually saved until you were 93, the numbers wouldn’t work in your favour. You will have to invest money in high quality assets that you know and understand to get the best results.
You can stick to traditional investments like individual stocks and exchange-traded funds if that’s what your comfort zone allows. You can also get into alternative investments like real estate, cryptocurrency, and tax liens if you are an expert in these areas. You will need a self-directed IRA to unlock these investment opportunities.
Let’s say your investments yield an average return of 8%, and you start investing at the age of 25.
- age: 25
- Annual Contribution: 6000 dollars
- rate of return on investment: 8%
By the time you turn 60, you could have about $1.03 million in your account.
If you are 40 years old, you can still see the victory of million dollars in the right amount of time if you get a higher return on your investment. We’ll run the numbers at a 10% ROI.
- age: 40
- Annual Contribution: 6000 dollars
- rate of return on investment: 10%
At the age of 71, you could have over a million dollars in your account.
The numbers above are just examples of how much money you can pool in your Roth IRA alone. Don’t forget other accounts, such as employer-sponsored 401(k)s, SEP IRAs, and taxable brokerage accounts. These accounts allow you to save more money and help you accelerate your millionaire goals.
Creating your own Roth IRA plan
It’s easier to achieve any goal when you break it down into bite-size pieces. Achieving your millionaire goals works the same way. All you have to do is set your goal, and work backwards to set annual, quarterly, monthly, weekly and daily goals that will get you to the finish line. So, get $25 today and put your million dollar success plan on autopilot.
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