$1 Million Retirement

           Being able to retire with $1,000,000 is not as complex as it may seem. The key to remember is that DIVERSIFICATION and INVESTING is key. You have to be consistent and diligent. First things first lets go over a few key elements. The traditional retirement age is around 65, the US and many other countries have some kind of national pension or benefits system in place to supplement retirees' incomes. In the U.S., for example, the Social Security Administration (SSA) has been offering retirees monthly Social Security income benefits since 1935.


  • average age 62 of retirement

  • 20.7% of the population will be 65 years or older by the year 2050

  • average length of retirement is 18 years

  • Over half of all retirees leave the workforce earlier than planned, often involuntarily

  • 41% leave the workforce due to health/disabilities

  • 14% leave the workforce to provide care for spouses or other family members

    Many brokerage firms offer no-minimum, no-fee retirement accounts that let individuals make automatic monthly deposits for as little as $25 or $50.

To project your needed retirement, consider the following:

  • desired retirement age

  • income needed to maintain one's standard of living, based on annual expenses and target retirement age

  • current market value of one's current savings and investments

  • realistic projection of the rate of return on investments

  • estimated value of employer pension plan

  • estimated value of SSI benefits

  • if retiring to another state

When making retirement calculations, you should assume that an annual inflation rate of 4% will deface the value of your investments, and should adjust your savings plans/goals accordingly. But generally speaking, the earlier one launches the retirement saving process, the greater success they will enjoy. Other keys to success include:

  • Setup asset allocation based on its specific risk tolerance and investment time 

  • Diversification: to protect your portfolios during shaky times

  • Set up automatic payments from checking accounts to your retirement savings account to eliminate the possibility of skipping a monthly deposit

  • Maximize your salary contribution to your employer-sponsored retirement plans

  • Work aggressively to pay down debts

Retirement Terms

This is just a sample of how to diversify your portfolio. Here is a sample breakdown.

$75,000 in Bonds

$120,000 in Stocks

$250,000 in cash (but invested in a CD or HY Savings

$200,000 in Gold (or commodities)

$355,000 in real estate (but you stay in one and rent the other that net $800/mo or $9,600.00/yr. 


Understanding your employer sponsored 401K.

Created in 1978, the 401(k) Plan is the most popular form of employer-sponsored retirement plan in the US. Millions of American workers depend on the money that they have invested in these plans to provide for them once they retire, and many employers see a 401(k) plan as a key benefit of the job. Few other plans can match the relative flexibility of the 401(k).


  • A 401(k) is a "qualified" retirement plan. That means it is eligible for special tax benefits under IRS guidelines.

  • You can invest a portion of your salary, up to an annual limit (usually 5%).

  • Your employer may or may not match some part of your contribution.

  • The money will be invested for your retirement, usually in your choice of a variety of mutual funds (see Terms attachment).

  • Usually you cannot withdraw any of the money without a tax penalty until you are 59½.


What Is a 401(k) Plan?

A 401(k) Plan is a kind of retirement savings account that allows an employee to divert a portion of their salary into long-term investments. The employer may match the employee's contribution up to a certain limit.

A 401(k) is technically a "qualified" retirement plan, meaning it is eligible for special tax benefits under IRS guidelines. Qualified plans come in two versions. They may be either defined-contribution or defined-benefit, such as a pension plan. The 401(k) plan is a defined-contribution plan.

This means that the available balance in the account is determined by the contributions made to the plan and the performance of the investments. The employee must make contributions to it. The employer may choose whether or not to match some portion of that contribution. The earnings in a traditional 401(k) plan are not taxed unless the employee withdraws that money, typically after retirement. After retirement, the account balance is entirely in the hands of the employee. 

About half of employers make matching contributions to their plans, with an average of close to 3% of salary. Many matches $0.50 on every dollar of the employee's contribution, up to a certain limit. Some offer a varying contribution from year to year as a profit-sharing method.

The Roth 401(k):

This plan is not offered by all employers, but the Roth 401(k) is an increasingly popular option. This type of the plan requires that the employee to pay income tax immediately on the contributions. After retirement, however, the money can be withdrawn with no additional taxes due on either the contributions/earnings on investment.


NOTE: Contributions from an employer can only go into a traditional 401(k) account—not a Roth.

Contribution Limits:

The maximum amount that an employee can contribute to a 401(k) , whether it's a traditional or Roth, is $19,500 for 2020 (up from $19,000 in 2019). Employees 50 yrs  and older can make additional catch-up contributions of up to $6,500 (up from $6,000 in 2019).  

The maximum allowed for joint contribution by both employer and employee is $57,000 for 2020 (up from $56,000 in 2019), or $63,500 for those 50 yrs.  and older (up from $62,000 for 2019).5

High Earners Limits:

For majority of American workers, the contribution limits on a 401(k)s are high enough to allow for adequate levels of income deferral. For 2020, higher paid employees ($400K and up) can only use the first $285,000 of income when determining the maximum possible contributions. Many employees also have the option of providing non-qualified plans such as deferred compensation or executive bonus plans for these employees.

Companies that offer a 401(k) plan typically offers it's employees a choice of several kinds of investment options. These options are usually managed by a financial services advisory group such as The Vanguard Group or Fidelity Investments. The employee can then choose one or several funds to invest in. Most of these options are mutual funds, and they may include index funds, large-cap and small-cap funds, foreign funds, real estate funds, and bond funds, which usually range from aggressive growth funds to conservative income funds.

Withdrawing Money:

Distribution rules for 401(k) plans differ from those that apply to IRAs. In either case, an early withdrawal of its assets from either plan will mean taxes are due with few exceptions, a 10% tax penalty will be due on those younger than 59½.

However, while an IRA withdrawal doesn't require a rationale, a triggering event must be satisfied to receive a payout from a 401(k) plan.

The following are the usual triggering events:

  • Employee retires from or leaves job

  • Employee passes away or is disabled

  • Employee reaches age 59½.

  • Employee experiences hardship (specifics usually defined under plan)

  • Plan termination.

Special Rules for 2020:

The CARES Act of 2020, allows individuals affected by the Covid-19 situation a "hardship" distribution of up to $100,000 without the 10% penalty for workers younger than 59½ . Account owners have 3 years to pay the taxes owed on withdrawals, instead of owing it in the current calendar year. The decision as to whether you can take a hardship distribution, however, is still up to the employer. Not required by plan sponsors.

Post-Retirement Rules:

The IRS mandates that 401(k) account owners to begin what it calls required minimum distributions (RMDs) at age 72 unless the person is still employed by that employer. This differs from other types of retirement accounts. Even if you're employed you have to take the RMD from a traditional IRA, for example.

Money withdrawn from a 401(k) is usually taxed as ordinary income.

Following the passage of the Setting Every Community Up For Retirement Enhancement (SECURE) Act in December 2019, the age for RMDs was raised from 70½ to 72.


The Rollover Option:

Many transfer the balance of their 401(k) to a traditional IRA or a Roth IRA, allowing them to escape the limited investment choices that are often present in 401(k) accounts.

In a direct rollover, the money goes straight from the old account to the new account and there are no tax implications. In an indirect rollover, the money is sent to you first, and you will owe the full tax liability on the balance in that tax year.

If your 401(k) has employer stock in it, you are eligible to take advantage of the net unrealized appreciation (NUA) rule and receive capital gains treatment on the earnings, this will lower your tax bill.


In order to avoid penalties and taxes, a rollover must take place within 60 days of withdrawing funds from the original account.

401(k) Plan Loans:

If permitted by your employer, you may be able to take a loan out of your 401(k). If allowed, up to 50% of the vested balance can be borrowed up to a limit of $50,000. This loan must be repaid within 5 years, longer repayment times are allowed for a primary home purchase.

The CARES Act doubled the amount of  money available as a loan to $100,000 in 2020, but only if you’ve been impacted by COVID-19 and long as your plan allows.

In most cases,  interest paid will be less than the cost of paying interest  like you would on a bank or consumer loan and you will be paying it to yourself. Be aware that any unpaid balance will be considered a distribution and will be taxed and penalized accordingly.

Speak with an Adviser:

Speaking with a certified financial adviser can help you reach your long-term financial goals. Tools like Smart Asset’s,which is a free tool that matches you with financial advisers in your area within 5 minutes. Each adviser has been vetted by Smart Asset and is legally bound to act in your best interests. 

PRO TIP: When deciding your investments your total investment value must equal 100%. You can always change it. Before making selections look at the trends and history of the investment to determine how well that particular investment is doing, You can learn more on tracking trends under stocks investments.

(c)TD&F Investment Group