Becoming a millionaire sounds possible when you’re young and see everything full of possibility. But what if you started out late in the game and would like to retire wealthy?
Read Next: Cutting Expenses for Retirement? Here’s the No. 1 Thing To Get Rid Of First
For You: 7 Reasons You Shouldn’t Retire Before Speaking To a Financial Advisor
It turns out, there are steps you can take if you’re in your 40s and have never invested before but really want to reach millionaire status by retirement.
Earning passive income doesn’t need to be difficult. You can start this week.
Maximize Retirement Account Contributions
According to Abid Salahi, finance expert and co-founder of FinlyWealth, your first step is to start maximizing contributions to tax-advantaged retirement accounts.
“For 2024, the contribution limit for a 401(k) is $23,000, with an additional $7,500 catch-up contribution for those 50 and older. If your employer offers a match, that’s essentially free money towards your retirement goal,” he said.
He also recommended maxing out your IRA contributions. “The limit for 2024 is $7,000, with an extra $1,000 catch-up contribution for those 50 and older,” he said.
Consistently maxing out these accounts can significantly accelerate your wealth accumulation.
Check Out: 2 Things Empty Nesters Should Stop Investing In To Boost Retirement Savings
Embrace Aggressive, Diversified Investing
Given the shorter timeline, Salahi said a more aggressive investment strategy is crucial. “Aim for a diversified portfolio heavily weighted towards stocks, which historically have provided higher long-term returns,” he said.
A mix of 80% stocks and 20% bonds could be appropriate, adjusting as you near retirement.
“Consider low-cost index funds or ETFs that track broad market indices,” he added. “These offer instant diversification and typically have lower fees than actively managed funds, which can eat into your returns over time.”
Leverage Health Savings Accounts
If you’re eligible, max out contributions to a health savings account (HSA). Salahi explained that HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses.
“In 2024, the contribution limit is $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older,” he said.
The key, Salahi said, is to pay current medical expenses out of pocket and let your HSA investments grow. “This strategy essentially creates another retirement account, as you can withdraw funds penalty-free for any purpose after age 65,” he said.
Create Additional Income Streams
Boosting your income is crucial when starting late. Salahi suggested considering freelancing, consulting or starting a side business in your field of expertise.
Then, you should allocate all of that additional income directly to your retirement savings.
“For example, if you can earn an extra $1,000 per month and invest it consistently for 20 years, assuming an 8% annual return, you could add over $590,000 to your retirement nest egg,” Salahi said.
Implement Aggressive Cost-Cutting Measures
“Scrutinize your budget and cut ruthlessly,” Salahi said.
To that end, consider downsizing your home, eliminating car payments by buying used vehicles outright and minimizing discretionary spending. “Every dollar saved is a dollar that can be invested for your future,” he said.
A practical approach, he explained, is to live on 70% of your income and invest the rest. “This might seem drastic, but remember, you’re making up for lost time,” Salahi said.
Delay Social Security Benefits
For each year you delay claiming Social Security benefits beyond your full retirement age (up to age 70), Salahi said your benefit will increase by about 8%. This guaranteed return can significantly boost your retirement income.
“For instance, if your full retirement age is 67 and your benefit would be $2,000 per month, delaying until 70 would increase it to about $2,480 per month,” he said. “This extra $480 per month can make a substantial difference over a 20-30 year retirement.”
Invest In Yourself To Boost Earning Potential
Salahi highly recommended investing in skills and certifications that can increase your earning power.
A higher income means more money to invest. He said online platforms like Coursera and edX offer affordable courses in high-demand fields.
“A $500 investment in a professional certification could lead to a $5,000 annual salary increase. Over 20 years, assuming you invest the entire increase and earn an 8% yearly return, this could add over $228,000 to your retirement savings,” Salahi said.
Consider Real Estate Investments
“Real estate can be a powerful wealth-building tool,” Salahi said. He suggested buying a multi-unit property, living in one unit and renting out the others. This can provide both appreciation and rental income to boost your retirement savings.
“For example, a $300,000 duplex that appreciates at 3% annually would be worth about $540,000 after 20 years. Add in potential rental income, and this could significantly contribute to your millionaire goal,” he said.
Stay Informed and Adjust Regularly
Financial markets and regulations change. That’s why Salahi recommended staying informed about investment strategies, tax laws and retirement planning techniques.
“Regularly review and rebalance your portfolio to ensure it aligns with your goals and risk tolerance,” he said.
Moreover, he suggested working with a financial advisor who can provide personalized strategies and help you stay on track. “Their expertise can be invaluable, especially when you’re playing catch-up,” he explained.
Considering all of the above, Salahi highlighted that while retiring a millionaire starting from zero in your 40s is challenging, it’s not impossible with discipline, strategic planning and consistent execution.
“The key is to begin immediately, maximize every opportunity to save and invest, and stay committed to your goal,” Salahi said.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 9 Steps To Retire a Millionaire If You’re in Your 40s and Have Never Invested
