Buffett's retirement strategy, known as the 90/10 strategy, involves allocating 90% of retirement funds to a low-cost S&P 500 index fund and the remaining 10% to low-risk short-term government bonds.
I recommend the Roth option. If your plan doesn't have a Roth option, your strategy should be to contribute just enough to the traditional 401(k) to qualify for the maximum matching contribution. Then do more retirement saving in a Roth IRA.
For personal finance guru Dave Ramsey, one retirement account option stands apart from the rest. Ramsey recommended contributing to a company-administered 401(k), but not necessarily the traditional version. “We always recommend the Roth option if your plan offers one,” said Ramsey.
A 401(k) account's major edge over an index fund is the tax advantage. Contributions to 401(k) accounts are pre-tax. Owners don't pay taxes on dollars they put in or the earnings from their investment portfolio until they start withdrawing funds.
Continue Contributing to Your 401(k) and Other Retirement Accounts. Steadily contributing to your 401(k) is another way to protect it from future market volatility. Cutting back on your contributions during a downturn may cost you the opportunity to invest in assets at discount prices.
You can definitely become a millionaire investing only in an S&P 500 index fund -- as long as you have enough time and you sock away sizable sums regularly. If you would like to chase higher returns, though, you might consider adding some other outstanding ETFs to your portfolio.
Financial expert Robert Kiyosaki, famed author of “Rich Dad Poor Dad” holds an opinion that may seem unpopular. The opinion in question: The 401(k) is a “horrible” retirement plan.
Everyone has different financial needs, but here's a golden rule: Whatever percentage your employer is willing to match, try to take full advantage of it. Anything less, and you could be leaving money on the table. Additionally, if financially possible, you may want to max out your 401(k) year after year.
Do Millionaires Use 401(k)s? Plenty of millionaires and superrich people use 401(k) plans to build wealth. But they don't necessarily put all their eggs in one basket. They may also supplement their 401(k) savings with IRAs, taxable brokerage accounts, annuities, real estate, and other investments.
Lack of liquity — your money is tied up
The money you save in a 401(k) isn't as easy to access as money deposited in a bank savings account or a taxable brokerage account. Why? The IRS imposes a 10% tax penalty on withdrawals made before full retirement age, which for most plans is 59 ½.
If there is no designated beneficiary for a 401k, the account typically becomes part of the deceased's estate. It then goes through the probate process, where a court supervises the distribution of assets according to the will or state law if there is no will.
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
Many novice investors lose money chasing big returns. And that's why Buffett's first rule of investing is “don't lose money”. The thing is, if an investors makes a poor investment decision and the value of that asset — stock — goes down 50%, the investment has to go 100% up to get back to where it started.
Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments.
Under the Rule of 95 members can retire when their age plus their years of service equal 95, provided that they are at least 62 years old. For example, a member who is 62 years old could retire with 33 years of service rather than waiting until their schedule based eligibility date (62 + 33 = 95).
How long will $300,000 last in retirement? If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. That's $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place.
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.
If your employer doesn't offer a company match: Consider skipping the 401(k) at first and start with an IRA or Roth IRA. You'll get access to a large selection of investments when you open your IRA at a broker, and you'll avoid the administrative fees that some 401(k)s charge.
Ramsey believes 15% of a person's income should be invested in retirement. So that means you should start with your company's 401(k) match amount and then invest even more.
A record number of Americans are 401(k) millionaires, thanks to a surging stock market. The tally of 401(k) millionaires reached 544,000 in the third quarter of 2024, up from 497,000 three months earlier, according to Fidelity Investments, a leading administrator of employer retirement plans.
“As a general rule, dipping into your retirement funds to cover a short-term need could end up costing you more in the long run,” says Walker. “If it's possible, I'd encourage you to consider other ways to access cash that could be more beneficial to your long- and short-term financial goals.”
For example, if you were to invest $500 into an S&P 500 index fund for 10 years, you could have more than $101,000 by the end of the 10th year. If you took the same approach for 20 years, your money would grow to nearly $380,000 (assuming a 10% annual rate of return).
A fundamental strategy employed by millionaires is their continuous commitment to investing. Many individuals invest with the long-term goal of achieving a financially comfortable retirement. They typically invest in stocks, bonds, mutual funds, target date funds, and other assets, diligently saving for retirement.
Five Years
If you're starting from scratch, online millionaire calculators (which return a variety of results given the same inputs) estimate that you'll need to save anywhere from $13,000 to $15,500 a month and invest it wisely enough to earn an average of 10% a year.