What’s the surest way to become a millionaire? I can tell you right now – max out your 401(k) contribution every year. This is the simplest and most assured method to build wealth. The problem is you have to start investing young and most of us didn’t know that when we were young. Most of us spent too much money and didn’t invest enough in our 20s. Even I hesitated to contribute to my 401(k) when I started working in 1996. To a young guy who just started working, retirement was 40+ years away. Why should I put so much money aside? I wanted to have fun, drive a nicer car, and wear better clothes. Fortunately, my dad convinced me to start contributing to my 401(k) and saved me from one of the biggest mistakes a young person could make. The compounding effect of investing early is absolutely amazing. It’s too bad so many young people don’t understand this concept and put off investing.
*Updated for 2018
Woefully inadequate retirement savings
Can you believe that half of all US households have no retirement savings at all? It’s true. Even households that saved for retirement haven’t saved enough. According to the latest (2016) Survey of Consumer Finance, the median value of retirement accounts for families near retirement age is around $120,000. That’s only the people with retirement accounts. People with no retirement accounts have much less retirement savings.
Anyway, even $120,000 isn’t going to be enough to support a normal retirement. If you keep track of your annual expenses, you’d know how long that much would support. For us, $120,000 would cover just a little over 2 years of expenses. That’s not long enough. Most retirees will have to depend on other sources of income such as Social Security Benefits, pensions, and part-time