You can be a millionaire, too

If someone ever told you it is very hard to reach a million dollars, they were not reading this.

You don't believe me?

Here are the numbers:

A recent study by the US Government  Accountability Office reveals more than 630,000 IRAs with balances of over $1,000,000.

IRA stands for Individual Retirement Arrangements that provides certain tax advantages and benefits for retirement.

By now you are probably asking HOW!?!

1) You have to save. There is no way around it. As Warren Buffett says, "Save your money and spend the remainder, not the other way around." During the economic crisis , American reaching retirement age had less than $30,000 saved in their retirement accounts. This is catastrophic! 

2) You have to invest your money looking at the horizon. Your goal should be long-term and not right now. 

If your employer offers a 401(K) or a retirement account, use it. In addition, if they match a percentage, invest the max allowed. This matching will provide you with additional free money, yes, FREE.

If your employer does not offer a retirement account, invest in financial instruments such as an IRA or consult with your financial adviser. An IRA has limitations with contribution ceilings per year based on age:

  • Fifty years old or younger, $5,500 per year
  • Fifty-one years old or older, $6,500 per year

WARNING. Math approaching:

If you invest $5,500 per year and you earn the average the S&P500 (An index for the largest 500 publicly traded companies)  has gathered for the past decades (approximately, a 7% return), you will be welcomed into the millionaires' club after 38 years.

Thirty-eight years? Don't be so hard on yourself. Unless you started investing $5,500 since you were 12 years old (12 years of age + 38 years investing), you will most likely be over 50 years old on your journey to becoming a millionaire. Remember, once you pass 50, your contribution can increase to $6,500.

Wait, there is more. If your employer offers a 401(K), you can roll this money over into an IRA.

So let’s assume you are 25, earn $40,000 a year, get 2% annual raises and contribute 15% of your pay. This would provide you with a contribution of $6,000, slightly higher than an IRA. If your salary increases, so would your annual contribution. Assuming you earn the average the S&P500 has gathered for the past decades (approximately, 7% return), it would take about 34 years to reach $1 million. Throw in 3-6% salary match each year in addition to the 15%, and the time to reach $1 million shrinks to 32 years or slightly less.

Please note, there are many other instruments an investor could take advantage of including ROTH IRA, Traditional IRA, 401(k), 403 (b), conventional investing, etc. Many of the financial instruments mentioned could help to reach financial goals.

The point of this article is to save and take advantage of all the opportunities out there to make money for your future. If you do this long enough, you will not regret it in the long haul.

Once again, do not forget to visit us!

http://www.sonomaninvestments.com

Written by:
Alex Lopez
Posted on:
July 25, 2017