3 Reasons You Won’t Retire From A Millionaire – And How To Fix It

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Meveryone’s goal is to retire with a lot of wealth – enough to support them through their senior years and enable them to achieve their lifelong goals. But if you’re not careful, you could end up thwarting your plans to retire as a millionaire.

Here are three reasons why you might not be able to crunch your savings to $ 1 million – and what you can do about it.

1. You lose too much money because of debt

The more money you spend on expensive debt repayments, the less you will have left for retirement. Mortgage debt is generally considered a healthy type to take on, as it eventually allows you to own an asset that can grow in value over time and even serve as a source of retirement income. Credit card debt is the opposite – it’s an expense that can cost you tons of money through interest charges that you don’t earn at the end of the day.

Middle aged man with serious expression at laptop

Image source: Getty Images.

If you are overloaded with debt, it could seriously hamper your ability to consistently fund a retirement plan or invest money in an investment account, so do your best to minimize unhealthy debt. Set a budget to see how much money you can afford to spend on a monthly basis, and limit your spending in non-essential categories, like entertainment, until you’ve paid off your credit cards and that you are in a better situation. up financially.

2. You invest too carefully

Many people avoid stocks because they can be very volatile. But if you play too carefully in your portfolio, you may not be generating high enough returns to meet your goals.

Suppose you can earn $ 400 per month over 40 years. With an average annual return of 4% – which you might get with a conservative portfolio – you will end up with $ 456,000. With an average annual return of 8% – which is more than reasonable with a portfolio rich in stocks – you will end up with $ 1.24 million.

If you’re worried about manually selecting stocks for your portfolio, check out index funds rather. They take a lot of the guesswork out of investing, so the pressure on you is less, while still allowing you to take advantage of the strong returns in the market as a whole.

3. You do not benefit from the tax advantages

Saving for the future in a brokerage account will give you the most flexibility with your money – you can withdraw from your account at any time as needed. The problem, however, is that by taking this into account you will miss out on lucrative tax breaks that will allow you to build more wealth.

Traditional IRA and 401 (k) s, for example, allows you to contribute pre-tax dollars in retirement, and then the investment gains are tax-exempt until you make withdrawals. Roth IRA and 401 (k) s are funded with after-tax dollars, but the growth of investments in these accounts is completely tax-free and withdrawals are not taxed either. While it is okay to invest some of your money in a regular brokerage account, it would be wise to take advantage of an IRA or 401 (k) plan if you want to retire with a big pile of cash.

Retire a millionaire certainly is not impossible. But if you make these mistakes, you may not achieve this goal. Make sure to avoid them at all costs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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