Will You Be Wealthy in Retirement? You Might, If You’ve Made These Money Moves
There’s no denying that there’s a retirement crisis in America. According to the U.S. Census Bureau, the median IRA/401(k) balance is just $30,000, an amount that might not even fund a single year of retirement.
While Social Security can make up some of the balance, the average monthly benefit for retired workers as of February 2024 was just $1,910.79, or just under $23,000 per year. And with benefit cuts of 20% or more potentially arriving by 2033, this isn’t a complete solution for most. But you can take steps to avoid putting yourself in this precarious situation.
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With solid financial planning — and discipline — you can set yourself up for a prosperous retirement, instead. Here are some of the indicators that you’ll be wealthy in retirement.
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You’ve Maxed Out Your Retirement Accounts
The maximum allowable contribution to a 401(k) plan for 2024 is $23,000. If you simply saved that amount in your 401(k) for 40 years, say from ages 25 to 65, you’d have $920,000. With any type of investment return at all, you’d be well over that amount. But even if you can’t afford to set aside that amount of money every year — and not many workers can — you can still build a $1 million nest egg. The important thing is to invest as much as you can, and at least enough to get your full employer match.
For example, if your employer matches 50% of the first 5% of your salary that you set aside, make it a goal to put in at least that much. You’ll earn an immediate 100% return on your matched money, plus you’ll earn decades of investment returns on the money your employer contributes. It’s the surest path to a sizable retirement account.
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You’ve Earned a High Social Security Benefit
While you shouldn’t rely on Social Security to fund your retirement, it can provide a significant boost. While the average Social Security retiree benefit is just under $2,000 per month, the maximum for 2024 is $4,873. That amounts to $58,476 per year. Even if you live an extravagant lifestyle, that’s a good amount of income to supplement what you draw from your retirement savings.
You’re Out of Debt
Debt is a financial albatross, no matter what phase of life you’re in. If you’re still working, your debt service payments will divert your cash flow away from your savings and investments, potentially crippling your nest egg. Once you’re retired, paying off debt will reduce your quality of life. It can also spiral out of control, as you may be living on a fixed income.
This is why it’s a great money move to get out of debt before you retire.
Your House Is Paid Off
A home is the biggest single investment that most Americans make, and it’s likely the single biggest drag you’ll have on your monthly cash flow. If you can afford to pay off your house while you’re still working, you’ll be able to divert all of that money towards your savings and investments — or even on things that can improve your quality of life.
If you’re a more sophisticated investor, you may even consider using the equity in your house to buy rental properties or otherwise generate additional income. Either way, a paid-off house gives you lots of financial options and is a sign that you may be wealthy in retirement.
You Have Sources of Passive Income
Warren Buffett once said that “if you don’t find a way to make money while you sleep, you will work until you die.” What Buffett means by this is that if you want to truly retire, you’ll need to build up sources of passive income. This way, money will flow into your bank account, even if you don’t have a job.
Dividend income from stocks, for example, is a way that you can generate cash flow without having to raise a finger. Income from rental real estate is another example, although you will have to do at least a little work to rent out and maintain your properties. But both are ways you can earn money without working a real job — and they may even allow you to retire early.
You Live Within Your Means
No matter how wealthy you are, if you spend more than you make, you’ll always have financial problems. But if you live within your means, you’ll be able to build a sizable retirement account balance even on a modest salary. It’s also an indication that you’ll be able to stretch the duration of your retirement savings and not outlive your income.
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This article originally appeared on GOBankingRates.com: Will You Be Wealthy in Retirement? You Might, If You’ve Made These Money Moves