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Save and retire a millionaire

By Judy Martel · Bankrate.com
Tuesday, January 24, 2012
Posted: 6 pm ET

Do you need to have money to make money? Not necessarily. With dedication, consistency and time, it's possible to start from scratch and end up at least in the top 10 percent of wealthiest Americans by the time you retire.

According to researcher Spectrem Group, the number of U.S. households worth $1 million or more in 2010 stood at 8.4 million, up from 7.8 million a year earlier. Here are a few tips to help you reach that milestone even on a modest salary:

The power of the 401(k)

Some experts say that since the average person has $60,000 in a 401(k) plan, it points to an overall failure of these retirement accounts. But it could be a failure to commit. Smart Money recently wrote that a small percentage of savers managed to sock away more than $1 million in their 401(k) accounts by retirement. The single biggest factor in accomplishing this feat even on a modest salary is the fact that the savers contributed the highest amount they could -- consistently -- over the course of their careers.

There are some factors, like high fees, that will erode returns, so it's important to seek lower-cost options and to diversify because you can never predict which asset classes will perform at any given time. The younger you are, the more assets you should have in stocks because they've been proven to deliver higher returns over time.

If your company has a 401(k) plan, contribute the maximum allowed. The company match gives you "free money" that you didn't have to earn, but go beyond the match to the maximum allowed by the IRS. You're still getting the tax-deferral benefits of the retirement plan and that will help you grow wealth until you reach 59 1/2 and can withdraw the money penalty-free.

After-tax investments

Investigate index mutual funds with low minimums or commission-free exchange-traded funds (ETFs) and begin an investment plan outside your company retirement plan. If you find two or three funds or ETFs that invest in a variety of sectors and countries, you'll have a low-cost, diversified investment portfolio. Make sure you take into account your retirement account investment mix so you won't be overweighted in any one sector.

Freedom from debt

Delayed gratification is an important element of this long-term plan to retire a millionaire. Debt will only carve into potential savings, so it's vital to avoid it as much as possible. Consumer spending is up, yet wages haven't increased, leading economists to believe it's the result of consumers raiding their savings accounts. They estimate that the national savings rate dropped from 5.1 percent to 3.5 percent in the last quarter of 2011.

While it's been difficult to recover from the investment carnage of the recession and housing values haven't yet begun to climb back to pre-recession levels, stick to your long-term plan and be rewarded with a comfortable retirement.

Do you have a consistent savings plan?

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January 26, 2012 at 12:51 pm

I don't think it is fair to go by the last 5 years of our current 401K since these years have been our country's worst years since the great depression. Since we are used to instant gratification which got us into this mess, we need to learn to slow things down and accumatate small but steady to get ahead. The comment from ngam,above, needs to realize the last 16 year of saving a 401K-keeping in mind the last 6ish have been aweful but will get better. 135K for a good 10 years (minus the aweful 6) isn't shabby.I have about 110k but seen it drop to 80 during the worse. I'm guessing they are my age (44ish). I've put 2 kids through college & now am going to start banking it. I'm in real estate (you know how Ive suffered the last few years) & it is slowly picking up so I think I've got time. I would definately do full contribution to max a 401k & not talk yourself out of it. Also never have all your eggs in a basket- Real Estate is full of good deals-pricing will not stay this low. Just my thought.

Save First
January 25, 2012 at 10:29 pm

I agree that the term "millionaire" has lost a lot of luster over the years. The number of them plus the current political environment does not make people strive to be known as such any more.

However, with the proper planning and appropriate investments (risk tolerance / time frame), it is achievable for more people than you can imagine. IT..TAKES..TIME (and patience, and discipline).

Pay yourself first - max your company match and them max your personal contribution -- $17k for 2012). A joint couple saving $34,000 in principal / year even in a low-risk/return investment will add up substantially over time.

Next, pay down your mortgage in extra principal payments. An extra $1,000 can save you $150-$200 based on your rate. That is 15%-20% if you look at it as an annual rate! Do that a few times per year and you'll shave off thousands. Use an amortization calculator and be shocked - you can cut your total outlay by HUNDREDS of thousands of dollars!

No fast money advice, but disciplined, control, budgeting, payment structures can get you to $1M.

January 25, 2012 at 3:43 pm

It doesn't seem to be working. I've saved into my retirement accounts since I started working 16 yrs ago. I've only saved up about 135k. It only grew about 18k over the past 16 yrs. Doesn't give me much hope that i would reach the million dollar mark. The last few years of up and down in the market is making my account stagnant. Same thing goes for my hubby. his 401k does have matching contribution, but the profit hasn't been much.

If the next 16 yrs is about the same, seem to be a waste to try to save for retirement when the profit doesn't seem to add up to much.

Tim Glover
January 25, 2012 at 6:08 am

John, Hang in there buddy. Americans have made profits as a way of life here. Others in this "ENTIRE" world do not have it like the Place we call home? CAN YOU IMAGINE living over 100 years ago? We have it made and are the space age because we will be there "NEXT" because USA does IT "RIGHT". The money will come. But YOU MUST BE HONEST when ANYONE ask you ANYTHING in AMERICA to KEEP IT THE BEST EVER IN THE HISTORY OF THE WORLD. USA baby. What does places like EGYPT have? "OLD" STATUES? WE have it made. Where else in the ENTIRE WORLD are the freedoms of Americans "NEVER KNOWN"? Like other countries to keep their poorest people in SHAMBLES. The "normal" cloths of those people? I don't know but AMERICANS would NEVER CALL THAT "NORMAL". And for "THOUSANDS of "good" reasons. I wish I could count on a "just system" for all abused here at the same time but that is something that will need to be worked on FOR SURE. OUR LAWS are the best but still have LOOP HOLES for all to find and use somehow?

January 24, 2012 at 9:25 pm

What does it mean to be a millionaire if the money isn't worth anything? Unfortunately, monetary policy currently rewards the irresponsible people. And stocks are a rigged game - too much insider info getting around. I save money but I can't believe that I should max my 401k or distress my finances to save - I just don't have enough confidence that my efforts will actually lead to a meaningful conclusion (monetary enrichment). I think it is just as likely that an inflationary period will make all the saving futile.