2 Secrets of IRA Millionaires

Changing your IRA (Individual Retirement Account) is not something most people manage to do – and that’s okay. Not everyone needs a seven-figure IRA balance to enjoy a comfortable retirement.

But if you look under the hood of what other IRA millionaires have done, you might be surprised at how simple it can be. A lot of it is simple advice you’ve probably heard before, but the game changer has the discipline to put it into action.

For those looking to join the IRA millionaire club, here are two secrets you’ll want to keep in mind.

Image source: Getty Images.

1. They understand that saving is only half the battle

Let’s cut to the chase: Strictly putting away your hard-earned money in an IRA isn’t enough to build a million-dollar nest egg. And that’s simply down to math. For example, if you were to save $3,000 annually in an IRA, it would take over 333 years to reach even $1 million, which is clearly not realistic.

Now, maybe you’re a “retirement super saver.” This is a currency called by the Transamerica Center for Retirement Studies for those who save at least 10% of their salary. But even if you maxed out your IRA contributions — $7,000 annually in 2024 if you’re under 50, or $8,000 if you’re older — you still wouldn’t reach $1 million after 100 years of saving. So don’t hold your breath, because once again bailout is not the answer.

This is where investments come in. By investing, those $7,000 annual contributions can grow into a million dollar IRA in a few decades. Of course, you’ll have to put up with some volatility if you’re investing in growth stocks, or be prepared to spend time researching if you’re a fan of individual stocks. You’ll also want to watch out for high fees or expense ratios when investing in exchange-traded funds, as these can reduce your annual returns.

But let’s say you stick with one S&P 500 the index fund, which is the main benchmark of the stock market. Historically, it has averaged a return of 10% annually over the long term. While you can’t rely on past performance to predict the future, take a look at how your portfolio could grow if you invested $7,000 annually and earned returns of 8%, 10%, or 12%. As you can see, the IRA millionaire’s club would be within your reach.

Data source: author’s calculations.

2. I don’t fall into money traps

The truth is, you can study the ins and outs of investing all day long, but you still won’t make it to a millionaire retirement if you miss the ball on the basics. So let’s dive into some fundamentals that will make it easier for you to save and invest consistently — without accessing your account:

• Create an emergency fund: Ideally, you want to have at least six months worth of expenses set aside for emergencies. If that seems overwhelming right now, don’t sweat it. Start by saving a little from each paycheck and build it up over time.
• Strengthen your savings account: Keep extra money in your savings account so you can set aside your emergency fund for true emergencies like car repairs.
• Pay the debt: Try to pay more than the minimum balance on your high-interest credit card debt to settle it faster. Once you pay it off, try to pay off your balance in full each month to avoid accruing interest.
• Live below your means: Track your finances to make sure you’re spending less than you earn each month. And if you increase your income, don’t let your lifestyle catch up with you.

None of these IRA millionaire secrets are likely shocking. However, they’ve probably sparked some ideas you can use right now to boost your IRA balance. To get the ball rolling, start by choosing an area to tackle first or set an IRA savings goal for this year. Track your progress and a year from now you’ll be amazed at how far you’ve come.