If you want to enjoy retirement without worrying about money, you probably need to plan ahead. But you don’t have to earn a ton during your working years to build up a substantial nest egg.
“You can retire rich on an average salary — no doubt about it. But it requires discipline,” said Kevin Ross, chartered financial consultant and senior managing director of private wealth management at Bridgeway Wealth Partners, LLC.
To retire rich, you need to be able to save enough money and invest it for long enough to grow to a point that you consider yourself to be wealthy, which can differ from person to person. While $1 million might be enough for some people to enjoy retirement, others might need several million to feel rich.
“It’s not just about the amount saved but also about financial stability, peace of mind and the freedom to enjoy life on your terms,” said Amy Colton, a financial advisor, certified divorce financial analyst and founder at Your Divorce Made Simple.
To get to this point, consider the following tips. Also see the best money moves to make before retiring to help make sure you have enough wealth.
There’s an old saying that the best time to plant a tree was 20 years ago, and the next best time is now. Wealth, like trees, typically takes a long time to grow, so the earlier you can start saving, the better. Of course, you can’t go back in time; so, if you haven’t started saving much for retirement, you probably want to get on that now.
“I suggest saving at least 15-20% of your income for retirement, but this can vary depending on your specific goals and circumstances,” Colton said. “The sooner you start saving, the more you can benefit from compounding interest, making it easier to accumulate wealth over time. If you aim to retire rich, you might need to save more than that, cut unnecessary expenses, and look for additional income sources.”
Earmark Your Savings
To retire rich, not only should you start saving as soon as possible, but you typically need to keep the momentum going. So save early and save often, says Ross.
As your savings grow, it’s important to earmark that money for retirement. Putting money into retirement vehicles like a 401(k) or individual retirement account (IRA) can help you save on taxes while creating a disincentive to spend that money, considering that can trigger early withdrawal penalties.
“When saving for retirement, you need to pretend that the money you save doesn’t exist for purposes of spending,” Ross said. “You need to resist the temptation to loot your savings to buy things that will deplete your nest egg.”
Invest for Long-Term Growth
Saving money can set you up for success, but to tap into the power of compound interest and accumulate wealth, you likely need to invest for long-term growth.
“For those with an average salary, the key to investing is not timing, but simply time,” Ross said. “Even with an average salary, if you invest the right way over time, the odds are strongly in your favor that you’ll retire rich.”
For many investors, that means putting money into assets that have a history of long-term gains.
“If you have a long time horizon and you want to retire rich,” Ross said, “you need to have some exposure to growth-oriented asset classes such as stocks and real estate.”
You can easily find retirement calculators online that let you play around with variables like your age, monthly retirement savings and expected investment returns to see how your portfolio can grow over many years.
While it’s typically helpful to focus on long-term growth, don’t assume that this means you need to make overly risky bets.
“Aggressive investment strategies may yield higher returns, but they come with higher risk,” Colton said. “Consistency in savings and making informed, calculated investment decisions typically provide a more reliable path to wealth accumulation.”
But that doesn’t mean you need to put all of your money into relatively low-risk assets, like treasuries, either. Instead, you probably want to build a diversified portfolio that includes growth-oriented assets, without taking unnecessarily big bets, like investing most of your retirement money in a hot new stock.
“It’s essential to have a diversified portfolio, aligning investments with your risk tolerance, financial goals and timeline,” Colton said.
Your retirement plan might provide free resources that can help you construct a portfolio designed for long-term growth while considering factors such as your risk tolerance. Or, you might seek out the help of a financial advisor.
Lastly, consider the effect of taxes on your wealth, because it’s not just about how much you accumulate but what you can keep.
As alluded to, putting pre-tax money into retirement accounts like a 401(k) or IRA can help you save on taxes now, which might enable you to save at a higher rate. Or, you might choose Roth accounts that ultimately let you withdraw money tax-free in retirement.
Here too, working with an advisor or looking up resources online can help you figure out how to construct your retirement portfolio to minimize taxes.
See What Retiring Rich Looks Like for You
Overall, retiring rich on an average salary can be an attainable goal, but that can largely depend on what you want your retirement to look like.
For example, Ross said, “One who is more frugal will not need to spend as much in retirement compared to someone that lives more extravagantly.”
So, think about what you want your retirement to look like, and then make a plan to save and invest accordingly.
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