Is it Possible to Retire Wealthy?

The idea of retiring a wealthy person is certainly an attractive idea. But how realistic is it?

If you’re under 40, your most valuable asset is time. Retirement is decades away, and contributions to a 401(k) or other retirement savings plan will have many years to compound and grow. Even a modest contribution now will mean a lot more than a larger contribution when you're in your 50s or later.

The truth is, you’ll never retire wealthy if you don’t start saving. Unfortunately, according to statistics, there are one in three Americans who have saved $0 for retirement. But interestingly enough, of those who are saving, a growing percentage are Millennials, especially in the 401k plan arena.

If you started putting away $200 a month in a retirement account from age 22, within ten years you’d have savings of more than $37,000, assuming your investments grow 7% a year. In 20 years, you’d have more than $100,000, and by the time you reach age 67, your nest egg would be worth around $1 million.

Most financial planners will recommend investing 15% of your salary toward retirement. That may seem like an unrealistic goal for young people with other financial obligations. If you're earning $30,000 a year, for example, that's $375 a month.

But with tax breaks associated with employer-sponsored retirement plans, plus a possible employer match, you can reduce your actual out-of-pocket contribution. Even a smaller contribution will give you a serious head start on saving, so you'll have a bigger stash that can grow for decades.

Some helpful tips:

Enroll in the 401(k)

Most major companies that offer 401(k) plans match a percentage of your contributions. Typically, these matches range from 25% to 100% of your contribution, up to 6% of your salary.

Fund a Roth IRA

Many small employers don't have the money or manpower to offer a 401(k) plan at all, let alone one with a company match. That means you have to create and manage your own retirement plan.

Pay off student loans

Federal student loans have fixed and relatively low rates. Pay them off along with other debt you’ve accumulated.

Resist cashing out

When you leave a job, you have several options for your 401(k) plan. You can leave it with your former employer, roll it into an IRA, roll it into your new employer’s plan (if your employer permits such rollovers), or ask your former employer to cut you a check.

You may be tempted to choose the last option, but in most cases, that's a bad idea. Your employer will withhold 20% of the amount withdrawn to cover income taxes. And because you're under 55, you'll also have to pay a 10% early-withdrawal penalty on the entire amount.

Plus, you're jettisoning any growth you've earned, which sends you back to square one when you start saving again.

With a little smarts and some sound financial strategies, you could retire with quite a large sum of money in your pocket.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.