Five Unique Ways to Grow Your Wealth

You know that old saying, "A penny saved is a penny earned"? Well, turns out it's more like "A thousand bucks saved is like adding a whole bunch of zeros to your nest egg." Let's do some math, shall we? Let’s say you need $40,000 per year to live off during retirement, on top of your Social Security. That means you need to build up a cool $1,000,000 to make ends meet (that's $40,000 divided by a 4% ‘safe withdrawal rate’, for all of you math folks out there). But what if you tightened your belt a bit and managed to live on $10,000 less each year? That's like adding a whopping $200,000 to your retirement nest egg! And on top of that, you’ll pay less in taxes too.

Ever considered sticking it out at your job for just one more year before retiring? While this may sound like torture, please hear me out. Every year you delay punching the clock for the last time, your retirement account gets a little fatter. Consider this scenario: you're 62, earning $80,000 per year, and sitting on a half million in savings. If you tough it out for another year, you're looking at an extra $80,000 in your pocket plus a year's worth of living expenses you don’t need to draw from your nest egg. Crunch the numbers, and you're basically earning $132,500 that year, not just $80,000. And let's not forget about that helpful Social Security boost you'll get too by waiting another year to claim your benefits. Not too bad for sticking it out a little longer, huh?

Many retirees have money in tax qualified accounts (IRAs, 401(k)s) that will trigger income tax when withdrawn. They may also have some already taxed money as well (Roth IRA or non-IRA mutual fund account). For simplicity’s sake, let’s assume a 22% effective tax rate. That means the IRS ‘owns’ 22% of your IRA and 401(k) accounts if you intend to use the money for retirement income. Rather than use only 401(k) and IRA money to create income, what if you used a combination of taxable and non-taxable accounts to maximize the 12% tax bracket, rather than push income into the 22% bracket. The effect is to increase the value of your nest egg by the amount of the tax savings. That’s like growing your money without taking on more risk.

Have you ever stopped to consider how much those mutual funds or variable annuities are really costing you? Hint: it's probably more than you think. Between the annual fees and the sneaky, implicit hidden charges, you could be losing out on a meaningful amount of cash. But there’s hope. By reducing those fees even just a bit, you could see a huge boost to your bottom line over time. It’s just one more way to make your money work harder so you don’t have to.

One of the fundamentals of wealth building is this: if you give money more time, it can give you more growth. So, if you choose to view your financial goals in a less immediate fashion, you can allow your money to grow more without any additional effort from you. For example, many people think that by retiring next year, they need their money available next year. But if you’re able to live off 5% or less of your money each year, that means 95+% of your investments are going to be invested indefinitely. All you really need is the interest earned from the nest egg to live your chosen lifestyle. So, if 95% of the money is going to be invested for 30+ years, why not consider turning up the risk dial just slightly to take advantage of higher long-term growth opportunities in the stock market? Initially, it's the same amount of money, but by stretching out the investing time horizon, and seeing things differently, you position your money to grow more over time than if you needed it all to be available for short-term needs.