Want to retire a millionaire? Follow these 4 steps – The Motley Fool

Millionaire status was once only reserved for the rich and famous, but these days you may need to have at least a million dollars in the bank to retire comfortably.

Pensions are more expensive than ever, and the average American 65 years and over spend about $ 46,000 a year, according to the Bureau of Labor Statistics. If you spend so much every year for 25 years, you will spend a total of about $ 1.15 million – and not even assessing the effects of inflation.

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Fortunately, it is not as challenging as you might think to retire a millionaire, even if you earn an average salary. Just follow these four steps.

1[ads1]. Calculate How Much You Need to Save Every Month

If $ 1 million is your ultimate retirement goal, figure out how much you should save each month to reach that goal after retirement.

Two factors affecting this are your current age and retirement age. The fewer years you have to save, the more you have to save each month. While you cannot change your current age, you can choose to delay retirement in a few years to make your storage goals a little easier.

For example, say you are 35 years old and nothing is saved for retirement and you want to retire by $ 1 million after age 65. Using a compound interest calculator we find that you need to save around $ 900 per month to get $ 1 million saved for 65 years, provided you earn a 7% annual interest rate return on your investments. But if you were to delay retirement to 70, you only need to save around $ 650 a month to reach the $ 1 million goal.

2. Be prepared to make some serious sacrifices.

It's not easy to go back with $ 1 million, but it's more challenging if you retire or have little or nothing saved already. You may even need to save thousands of dollars a month if you're only a decade or two away from retirement with almost nothing in your pension fund.

It is just not achievable for some people, but if you are willing to make sacrifices, it can set your goal within reach. If the money is tight and you've decided to start saving hundreds of dollars a month, start by looking honestly on your budget and taking some cuts.

Depending on how serious you are about drawing a millionaire, you may have to eliminate all but the most crucial monthly expenses. Start by cutting really unnecessary expenses, including any subscriptions or memberships you rarely use. Next, trim down the nice costs, like eating out, cable, going to the movies and shopping for things you don't need.

Finally, if you still struggle to come up with enough money, take a look at your biggest expenses and see if there are ways they can be reduced. For example, are you willing to sell your car? How about downsizing your home to save money on your home loan? These are important lifestyle changes, but they can help you save hundreds per month.

3. Investing in the stock market

It's one thing to come up with the money you need to save every month to reach your goal. But if you do not invest it in the right places, you will probably come short.

Some may think it is smarter to invest their savings in "secure" investments, such as a money market fund, a CD or even a savings account. These types of investment options carry less risk, certainly. But they also have much lower potential returns, so your money won't go very far. If you invest $ 900 a month in an account that earns an annual return of 3%, you will only have around $ 513,000 saved after 30 years – not nearly close to the $ 1 million goal.

The stock market may seem scary, but it's the most effective way to earn high enough returns to save a significant amount of money after retirement. The key is to make smart investment choices to protect your money.

Index Funds and Funds allow you to spread your money over dozens or even hundreds of different stocks, limiting your risk if one or two companies in the fund take a nosedive. While the stock market will always experience ups and downs, over time you can expect to see an upward trend in your earnings.

4. Check in on your savings regularly and make adjustments

With any goal, it's important to check in on your progress regularly and see where you stand. If you're behind where you thought you'd be, you might have to make some adjustments to get back on track.

It's hard to tell if you're on track for retirement just by looking at your total savings. Due to compound interests, you may not make much progress in the early years, but your savings will grow exponentially after a few decades. If you make smart investment choices and meet your monthly savings goals, don't worry if your investments haven't grown as much as you think they should – it takes time to see dramatic results.

The things you need to think about as if you are saving on a control include factors such as having saved as much as you should every month, and if your long-term goals are the same as when you started saving. If you've skipped storage for a few months or saved less than you should, you might have to start saving more each month to make it easier. Or if you have reason to believe that you may not be able to work as long as you originally planned, you may need to increase your savings now, if you are forced to retire earlier than you expected.

Rising Millionaire It's not easy, but it's possible if you're willing to work for it. The sooner you start saving, the easier it will be.