WWill 2022 be the year you move towards your goal of retiring as a millionaire? The answer is yes – if there are two things you can do. First of all, keep reading. You will learn four simple and essential steps to building wealth in your 401 (k). Second, implement what you learn. If you take action, the results will follow.
1. Set smaller retirement savings milestones to reach your goal
The goal of raising $ 1 million in your 401 (k) is a long term issue. If you are just starting this journey, sometimes the end point can seem elusive. To avoid getting discouraged, try breaking down that big goal into several smaller steps. You will see faster progress towards reaching those initial milestones, and it stirs up your motivation.
Smaller goals work best if you focus on factors you can control. For example, you can set a goal of contributing a certain amount to your 401 (k) this year. Or, you can commit to using 50% of your next raise to increase your retirement contribution. These are more effective goals than, say, aiming for 12% growth in your portfolio over the next 12 months.
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It’s also okay if you’re not sure how your small goals fit into the bigger one. Suppose you feel comfortable contributing $ 600 per month to your 401 (k) over the next six months. But a savings goal calculator recommends a long-term contribution of $ 750 per month to reach the millionaire’s finish line.
Accept the smaller contribution as a temporary situation, then regularly reassess your contribution budget. This is a better approach than not saving at all. Trust that if you keep moving in the right direction, the exact path to $ 1 million will present itself over time.
2. Increase your contributions
Take up the challenge in 2022 to find new opportunities to increase your pension contributions. Here are some ideas:
- Look for salary increases. Every raise is a chance to save more for retirement.
- Pay off credit accounts. Eliminate a monthly payment from your budget and you free up money for higher 401 (k) dues.
- Cancel unused subscriptions. Are you done with Apple TV? Cancel it and save an extra $ 5 per month on your 401 (k).
- Shop around for cheaper insurance premiums. If you can reduce your insurance bill by $ 400 per year, you can redirect those funds to your retirement account.
Challenge yourself to increase your pension contributions at least twice over the next 12 months. Even if the increases are small, you are developing financial discipline – and long term discipline is the key to becoming a 401 (k) millionaire.
3. Familiarize yourself with compound earnings calculators
A compound earnings calculator like this one can help you quantify the growth potential of your retirement account. You can calculate the numbers every six or 12 months to see how you are heading towards your $ 1 million goal.
To use a compound earnings calculator, you need to project the growth rate of your portfolio. A good starting point is 7%. This is the long-term average annual growth of the stock market after inflation. An annual growth of 7% should be expected under two conditions:
- You are mainly invested in actions. If you invest more conservatively in bond funds, you might not get that 7% growth. Your growth rate can vary from 2% to 5%, depending on the bond securities you hold and whether they make up all or part of your portfolio.
- You haven’t retired for at least 10 years. The stock market shows an average growth of only 7% over longer periods. In shorter time frames, the market performance can be much higher or lower than 7%.
4. Keep learning about investing
It is possible to grow a 401 (k) balance without a high level of investment skills and expertise. But improving your investment know-how in 2022 could make the difference in your retirement plan. At a minimum, you will make more confident decisions. You are also likely to manage your risks better and have more realistic expectations about the future.
Here are some useful topics to look for this year:
Commit to saving 401 (k) in 2022
This year, pledge to retire with $ 1 million in your 401 (k). You can follow through on this commitment now by setting realistic goals and increasing your contributions at every opportunity. Familiarize yourself with using compound interest calculators so you can plan ahead and track your progress.
Take these steps while expanding your investment expertise in 2022, and you are sure to take your 401 (k) balance to new heights.
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