The same study also suggests most Americans aren’t saving enough for retirement. Only 21% of those who retired did so because they had the financial means to retire comfortably, and 68% of those who retired later than planned did so for financial reasons. But working longer may not be possible for everyone. Highlighting this fact, 46% of those who retired earlier than planned did so for health reasons.
But perhaps even more concerning, almost 50% of Americans are not saving for retirement at all, according to Rachel Cruz, personal finance expert and co-host of The Ramsey Show. In a recent Fox Business interview, Cruz said that, based on her experience, many are struggling to even find the margin to save for retirement. That’s why she says the first step is to find the margin in your budget.
The No. 1 rule to becoming a millionaire
According to Fox Business host Maria Bartiromo, “The No. 1 thing to do on your road to becoming a millionaire is very simple: join your company’s 401(k) plan. Put as much money in there as you can, early on, and make sure you do not touch it.”
Cruz recommends contributing to your 401(k) up to the match your company offers, if it offers one. Matching can add significant contributions to your retirement savings over time. For instance, in 2023, the median match for plans managed by Vanguard — which manages retirement accounts for 4.9 million people through 1,500 plans — was 4.0% of annual income. The average was 4.6%, while most plans had matches between 3% and 6%.
So, for example, if your salary is $60,000 per year and your employer matches contributions up to 4.0% of annual income, the annual contribution from your employer could be up to $2,400. After maximizing your employer’s match, Cruz recommends contributing to programs such as a Roth IRA or Roth 401(k), which have tax-free withdrawals in retirement.
Build a financial footing and think long-term
For many younger people, retirement seems a long way off — especially when they have more immediate needs for their money. But Cruz says you need to adopt a “long-term mindset.” To build financial security and start on the path to becoming a millionaire, she recommends first paying off your debt and then creating an emergency fund that equals about three to six months of expenses.
Once you’ve made it this far, you can then start putting 15% of your income into retirement, starting with a 401(k) if it’s available to you. She says it’s important to contribute to the plan consistently and avoid pulling any money out, even if the market is down.
Invest now and stay invested
Waiting for the perfect entry point will likely cost you, according to Charles Schwab, and time out of the market could hurt your returns. To put this into perspective, research by Fidelity shows that if you invested $10,000 in the S&P 500 Index on Jan. 1, 1980 but missed the best five days in the following years, you’d miss out on $411,258 of potential returns by Dec. 31, 2022.
It’s a not-so-secret rule that starting early and regularly contributing to your 401(k) — and not touching the money until you retire — can start you on the journey to becoming a millionaire. And, like any journey, it all starts with taking the first step.
Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
