How to Become a Millionaire by Maxing Out Your 401k
With your employee 401k retirement plan, becoming a millionaire is incredibly easy. You simply enroll in your employer's plan, look over the fund choices your company offers to invest in, and then select how much of your pay you want to contribute. Then just relax and watch your retirement account increase. Every now and again just take a look to see if you need to re-balance your account. It is all automatic and you likely won't even notice the money missing from your paycheck every month.
While a retirement 401k account can seem boring, there are plenty of reasons to get excited:
This activity can make you a multimillionaire with very little effort. A 25-year-old making $40, 000 a year who invests 10% of their salary into their 401k plan would have $1.9 million when they are ready to retire (assuming 10% average annual return). Now, let's that same person receives a 5% raise is received every year. That 401k plan is now worth $3.2 million. Would you be able to live comfortably off of $300, 000 during retirement? That's what you could expect to earn just off the returns on that nest egg. Note that this does not even take into consideration employee matching benefits that would also boost your 401k. This is free money you could be leaving on the table if you are not taking advantage of your company's matching program.
Time is the investor's best friend when it comes to building wealth and making your retirement account grow. The sooner you start contributing toward your 401k, the more money there will be at retirement. Compound interest is so powerful that the time variable probably pays a bigger role than you think. The person above, for example, who's making $40, 000 and starts contributing at 35 will only have $1.1 million - a difference in nearly a million dollars.
Your 401k makes it easy for you to invest like a millionaire and put your money directly in an investment account before you are taxed on your income. Self-made millionaires are experts at minimizing their income so they don't have to claim as much on their taxes. Since your 401k acts as a tax shelter and contributions are pre-tax contributions, you pay less taxes on your take-home pay, invest with tax-free money, and assist in remaining in a lower income tax bracket altogether.
These are just a few benefits of taking advantage of your employer's 401k plan. Get started now if you haven't already, or push as much money as you can if you are already enrolled in your company's plan. At the very least, take full advantage of your company's matching program so you are not passing up free money.
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Article Source: ArticlesBase.com
