The First Million Dollars Is the Hardest ... But Not as Hard as You Think
The cash you add to your nest egg does much of the work to get you started. But along the way toward that $1 million milestone, your invested cash starts doing most of the work for you.
Just look at how much longer it takes to go from $0 to $1 million than it does to go from $1 million to $2 million. Your first million in this scenario takes a few decades to reach. That second million? It takes less than one decade.
Getting Started -- with a Boost
If you haven't been investing before, coming up with that $600 a month may seem daunting. Fortunately, you probably don't have to come up with that full amount from your own pocket to put that kind of cash to work for you. If you're able to invest through a traditional 401(k) plan at work, Uncle Sam and your boss may very well chip in to help you out.
? Uncle Sam: When you contribute to your traditional 401(k) plan, every dollar you put into the plan reduces the wages that are reported for federal income tax purposes. In effect, if you're in the 25 percent tax bracket, it's as if you kick in $0.75 out of your pocket and Uncle Sam kicks in the other $0.25 of every dollar you invest.
? Your boss: While it's not mandatory, many companies offer 401(k) matches. In a matching program, the company agrees to contribute to your 401(k) plan alongside you. Formulas vary, but a typical match level is 50 percent of your contribution, up to some cap based on your salary.
Put those two factors together, and it gets much easier to come up with that $600 monthly investment. If your boss matches 50 percent of your contribution, it only takes $400 from you to hit that total. And since Uncle Sam is willing to forgo his 25 percent of the money you contribute, that $400 only costs you $300 out of pocket. In essence, to get $600 invested, it only depletes your pocketbook by $300.
That works out to a $10-a-day out-of-pocket sacrifice that, in the end, could net you a multimillion-dollar nest egg.
Remember, time is an important factor in any investing plan. The longer you wait to get started, the less time your money has to work for you, and the more of your own cash you need to put up to wind up in the same place at the end of your working life.
You now know how to get there. So start making your money work for you today so that it has ample time to do the heavy lifting down the road.
Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically undersaving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. I urge you to learn about The Shocking Can't-Miss Truth About Your Retirement.
Motley Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook.
Source: http://dailyfinance.com/2013/01/18/first-million-dollars-retirement-planning/
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