Figure out retirement goals. Austin points out that a retirement account “should not be used as a piggy bank.†It is strongly advised that Michael contribute at least $5,000 per year to his 401(k), to get his company match. At that rate, assuming annual salary increases of 3% and investment returns of 8%, Austin estimates Michael’s 401(k) portion of his nest egg may grow substantially and could exceed $1.1 million within 25 years. “If Nia continues to contribute 3.5% of her salary to her 403(b), this account will have approximately $400,000 when she retires,†predicts Austin. Once the McElroys set personal long-term goals and work with an adviser, they may want to increase these numbers based on their anticipated lifestyle in retirement. Michael periodically receives bonus compensation. “A conservative approach for the McElroys would be to treat this as ‘found’ money, formulate a budget from his base salary, and apply these and any tax refunds toward savings and retirement goals. If they make lump sum contributions of at least $8,000 into an IRA at tax time and make periodic monthly contributions of $900 into preferred tax vehicles, they could generate more than $1 million in additional retirement savings,†says Austin.
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