As of 2022, the average American aged 64 to 74 had about $609,000 in retirement savings, according to the Federal Reserve. But you may have loftier goals, such as retiring with a $1 million Roth IRA.
A massive-sized nest egg could lead to the retirement of your dreams. So if you're eager to grow your Roth IRA to $1 million, here are some tips to help you along.
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1. Time is your greatest asset
It's possible to get a late start to retirement planning and still end up with a nice amount of money. But the earlier you start investing your money, the more likely you are to meet your savings goal.
To that end, aim to start saving for retirement during your 20s or 30s. Waiting until your 40s or 50s might make life a bit easier earlier on from a cash flow perspective. But in waiting, you'll lose out on valuable years of compounded returns in your Roth IRA.
2. Stocks can fuel your savings' growth
You don't need to contribute $1 million to your Roth IRA in your lifetime to end up with $1 million. If you choose the right investments, you might end up with $1 million despite parting with a lot less money than that. And the great thing about Roth IRA gains is that they're yours to enjoy tax-free.
While you could invest your nest egg in different assets, stocks are a good bet because they've consistently delivered strong results in the long run. This doesn't mean that your Roth IRA balance will grow from year to year with a stock-heavy portfolio. But if you invest your savings in stocks over several decades, you're likely to come away with a lot of money.
3. You don't need to beat the market
Some stock investors have the goal of beating the market -- meaning, assembling a portfolio that outperforms broad indexes like the S&P 500. There's nothing wrong with having that goal if you're willing to work toward it by researching stocks individually and consistently assessing your investment strategy. But there's a much easier way to get to a $1 million Roth IRA.
Instead of buying individual stocks, you could fall back on a total stock market ETF (exchange-traded fund) or S&P 500 ETF. Either option gives you instant diversification while allowing your money to grow.
The numbers really work
Even with this advice, you may be skeptical about getting your retirement savings to the $1 million mark. But consider this scenario. You start saving $325 a month for retirement at age 27 -- so not necessarily the very start of your career, but fairly early on.
You continue to contribute $325 a month to your Roth IRA through age 67, which is full retirement age for Social Security if you were born in 1960 or later. During that 40-year window, your portfolio delivers an 8% average annual return, which is a bit below the market's average.
All told, you're looking at a touch more than $1 million to your name. Really. So if you like the idea of retiring a millionaire, prioritize Roth IRA contributions early on, invest in stocks consistently, and don't be afraid to simplify the process.
