Personal Finance

Here’s how to retire a millionaire, according to finance pros

Published

6 months ago

December 13, 2024

Business Finance News

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Building a $1 million nest egg may seem an impossible feat.

However, amassing such retirement wealth is within reach for almost anyone — provided they take certain steps, financial advisors say.

“You might think that, ‘Well, I have to become a Silicon Valley entrepreneur to become rich,'” said Brad Klontz, a financial psychologist and certified financial planner.

In fact, you can be a fast-food worker your whole life and amass wealth, said Klontz, a member of the CNBC Financial Advisor Council and the CNBC Global Financial Wellness Advisory Board.

The calculus is simple, he said.

Every time you’re paid a dollar, save and invest a percentage toward your “financial freedom,” Klontz said.

With this mindset, “you can work almost any job and retire a millionaire,” he said.

It’s not necessarily a ‘Herculean task’

Saving $1 million may sound like a “Herculean task” but it “might not be as hard as you think,” Karen Wallace, a CFP and former director of investor education at Morningstar, wrote in 2021.

How to retire with $1 million if you're making $65,000 per year

The key is to start saving early, perhaps in a 401(k) plan, individual retirement account or taxable brokerage account, experts said. This allows investors to harness the magic of compound interest over decades. In other words, you “let your investments do as much heavy lifting as possible,” Wallace wrote.

About 79% of American millionaires say their net worth was “self-made,” according to a Northwestern Mutual poll published in September. Just 11% said they inherited their wealth, while 6% got it from a windfall event like winning the lottery, according to the survey of 4,588 U.S. adults, fielded from Jan. 3 to Jan. 17, 2024.

There were 544,000 Americans with 401(k) balances of more than $1 million as of Sept. 30, according to Fidelity Investments, which is the largest administrator of workplace retirement plans. There were also more than 418,000 IRA millionaires.

In fact, the number of 401(k) millionaires grew by 9.5%, or 47,000 people, between the second and third quarter of 2024, largely due to stock-market gains.

How to get to $1 million

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Winnie Sun, a financial advisor, provides an example of the math that links $1 million of wealth with consistent saving.

Let’s say a 30-year-old makes $60,000 a year after tax. If they were to save $500 a month — or, 10% of their annual income — they’d have $1 million by age 70, assuming average market returns of 7%, she said.

This doesn’t account for financial factors that might boost savings over that period, like a company 401(k) match, bonuses or raises.

You can work almost any job and retire a millionaire.

Brad Klontz

financial psychologist and certified financial planner

“In 40 years, you’ll have over $1 million, and that’s doing nothing else but $500 a month,” said Sun, co-founder of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Financial Advisor Council.

It’s also important to avoid debt, which is probably the “biggest cavity” for building savings, and try not to increase expenses too much, Sun explained.

Timing is more important than being perfect, Sun said.

She recommends starting with a low-cost index fund — like one tracking the S&P 500, which diversifies savings across the largest publicly traded U.S. companies — and building from there.

“Even waiting a year can make a dramatic difference in reaching that $1 million point,” Sun said. “Stop and take action.”

What is the right amount of savings?

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Of course, $1 million in retirement may not be the right amount for everyone.

An oft-cited rule of thumb — known as the 4% rule — indicates a typical retiree can draw about $40,000 a year from a $1 million nest egg in order to safely assume they won’t run out of money in retirement. (That annual withdrawal is adjusted annually for inflation.)

For many, this sum would be supplemented by Social Security.

Fidelity suggests a savings goal based on income. For example, by age 67 a worker should aim to have saved 10 times their annual salary to ensure for a comfortable retirement.

Ideally, households would aim to save 15% to 20% of their income, Sun said. This is a rule of thumb often cited by financial planners.

How much wealth you want — and how quickly you want to be rich — will determine the percentage, Klontz said.

He’s personally aimed for a 30% savings rate, but knows people who’ve shot for close to 90%. Saving such large chunks of one’s income is a common thread of the so-called FIRE movement, which stands for Financial Independence, Retire Early.

How do they do it?

“They didn’t move out of their parents’ house, they minimized everything, they don’t buy new clothes, they take the bus, they shave their head instead of paying for haircuts,” Klontz said. “There’s all sorts of hacks you can do if you want to get there faster.”

How to enjoy today and save for tomorrow

Of course, there’s a tension here for people who want to enjoy life today and save for tomorrow.

“We weren’t meant to only survive and save money,” Sun said. “There has to be that good quality of life and that happy medium.”

401(k) plans opening to more part-time workers

One strategy is to allocate 20% of household expenses toward the thing or things that are most important to you — perhaps big vacations, fancy cars, or the newest technology, Sun said.

Make some concessions — i.e., “scrimp and save” — on the other 80% of household costs, she said. This helps savers feel like they’re not reducing their quality of life, she said.

Personal Finance

What Pell Grant changes in Trump budget, House tax bill mean for students

Published

23 hours ago

June 8, 2025

Business Finance News

Carol Yepes | Moment | Getty Images

For many students and their families, federal student aid is key for college access.

And yet, the Trump administration’s budget proposal for fiscal year 2026 calls for significant cuts to higher education funding, including reducing the maximum federal Pell Grant award to $5,710 a year from $7,395, as well as scaling back the federal work-study program. The proposed cuts would help pay for the landmark tax and spending bill Republicans in the U.S. Congress hope to enact.

Roughly 40% of undergraduate students rely on Pell Grants, a type of federal aid available to low-income families who demonstrate financial need on the Free Application for Federal Student Aid. Work study funds, which are earned through part-time jobs, often help cover additional education expenses.

President Donald Trump‘s “skinny” budget request said changes to the Pell Grant program were necessary due to a looming shortfall, but top-ranking Democrats and college advocates say cuts could have been made elsewhere and students will pay the price.

“The money we invest in post-high school education isn’t charity — it helps Americans get good jobs, start businesses, and contribute to our economy,” Sen. Elizabeth Warren, D-Mass., told CNBC. “No kid’s education should be defunded to pay for giant tax giveaways for billionaires.”

Pell Grants are ‘the foundation for financial support’

Nearly 75% of all undergraduates receive some type of financial aid, according to the National Center for Education Statistics.

“Historically the Pell Grant was viewed as the foundation for financial support for low-income students,” said Lesley Turner, an associate professor at the University of Chicago Harris School of Public Policy and a research fellow of the National Bureau of Economic Research. “It’s the first dollar, regardless of other types of aid you have access to.”

Under Trump’s proposal, the maximum Pell Grant for the 2026-2027 academic year would be at its lowest level in more than a decade.

“The Pell reduction would impact the lowest-income families,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

More than 92% of Pell Grant recipients in 2019-2020 came from families with household incomes below $60,000, according to higher education expert Mark Kantrowitz.

How Pell Grant cuts could affect college students

If the president’s cuts were enacted and then persisted for four years, the average student debt at graduation will be about $6,500 higher among those with a bachelor’s degree who received Pell Grants, according to Kantrowitz’s own calculations.

“If adopted, [the proposed cuts] would require millions of enrolled students to drop out or take on more debt to complete their degrees — likely denying countless prospective low- and moderate-income students the opportunity to go to college altogether,” Sameer Gadkaree, president and CEO of The Institute for College Access & Success, said in a statement.

Already, those grants have not kept up with the rising cost of a four-year degree. Tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier. At four-year, in-state public colleges, the average was $24,920, up from $24,080, according to the College Board.

The Pell program functions like other entitlement programs, such as Social Security or Medicare, where every eligible student is entitled to receive a Pell award.

However, unlike those other programs, the Pell program does not rely solely on mandatory funding that is set in the federal budget. Rather, it is also dependent on some discretionary funding, which is appropriated by Congress.

The Congressional Budget Office projected a shortfall this year in part because more students now qualify for a Pell Grant due to changes to the financial aid application, and, as a result, more students are enrolling in college.

Cutting the Pell Grant is ‘extreme’

Although there have been other times when the Pell program operated with a deficit, slashing the award amount is an “extreme” measure, according to Kantrowitz.

“Every past shortfall has been followed by Congress providing additional funding,” he said. “Even the current House budget reconciliation bill proposes additional funding to eliminate the shortfall.”

However, the bill also reduces eligibility for the grants by raising the number of credits students need to take per semester to qualify for the aid. There’s a concern those more stringent requirements will harm students who need to work while they’re in school and those who are parents balancing classes and child care.

“These are students that could use it the most,” said the University of Chicago’s Turner.

“Single parents, for example, that have to work to cover the bills won’t be able to take on additional credits,” Mayotte said.

“If their Pell is also reduced, they may have to withdraw from school rather than complete their degree,” Mayotte said.

Personal Finance

What a ‘revenge tax’ in Trump’s spending bill means for investors

Published

24 hours ago

June 8, 2025

Business Finance News

WASHINGTON DC, UNITED STATES – MAY 30: United States President Donald Trump departs at the White House to U.S. Steel’s Irvin Works in West Mifflin, Pennsylvania in Washington D.C May 30, 2025.

Celal Gunes | Anadolu | Getty Images

As the Senate weighs President Donald Trump‘s multi-trillion-dollar spending package, a lesser-known provision tucked into the House-approved bill has pushback from Wall Street.

The House measure, known as Section 899, would allow the U.S. to add a new tax of up to 20% on foreigners with U.S. investments, including multinational companies operating in the U.S.

Some analysts call the provision a “revenge tax” due to its wording. It would apply to foreign entities if their home country imposes “unfair foreign taxes” against U.S. companies, according to the bill.

“Wall Street investors are shocked by [Section] 899 and apparently did not see it coming,” James Lucier, Capital Alpha Partners managing director, wrote in a June 5 analysis.

If enacted as written, the provision could have “significant implications for the asset management industry,” including cross-border income earned by hedge funds, private equity funds and other entities, Ernst & Young wrote on June 2.

Passive investment income could be subject to a higher U.S. withholding tax, as high as 50% in some cases, the company noted. Some analysts worry that could impact future investment.

The Investment Company Institute, which represents the asset management industry serving individual investors, warned in a May 30 statement that the provision is “written in a manner that could limit foreign investment to the U.S.”

But with details pending as the Senate assesses the bill, many experts are still weighing the potential impact — including who could be affected.

Here’s what investors need to know about Section 899.

How the ‘revenge tax’ could work

As drafted, Section 899 would allow the U.S. to hike existing levies for countries with “unfair foreign taxes” by 5% per year, capped at 20%.

Several kinds of tax fall under “unfair foreign taxes,” according to the provision. Those include the undertaxed profits rule, which is associated with part of the global minimum tax negotiated by the Biden administration. The term would also apply to digital services taxes and diverted profits taxes, along with new levies that could arise, according to the bill.

The second part of the measure would expand the so-called base erosion and anti-abuse tax, or BEAT, which aims to prevent corporations from shifting profits abroad to avoid taxes.

“Basically, all businesses that are operating in the U.S. from a foreign headquarters will face that,” said Daniel Bunn, president and CEO of the Tax Foundation. “It’s pretty expansive.”

The retaliatory measures would apply to most wealthy countries from which the U.S. receives direct foreign investment, which could threaten or harm the U.S. economy, according to Bunn’s analysis.

Notably, the proposed taxes don’t apply to U.S. Treasuries or portfolio interest, according to the bill.

‘Strong priority’ for House Republicans

Section 899 still needs Senate approval, and it’s unclear how the provision could change amid alarm from Wall Street.

But the measure has “strong support” from others in the business community, and it’s a “strong priority” for Republican House Ways and Means Committee members, Capital Alpha Partners’ Lucier wrote.

House Ways and Means Committee Chairman Jason Smith, R-Mo., first floated the idea in a May 2023 bill, and has been outspoken, along with other Republicans, against the global minimum tax.

Elon Musk ramps up criticism of Trump bill

If enacted as drafted, Section 899 could raise an estimated $116 billion over 10 years, according to the Joint Committee on Taxation.

That could help fund other priorities in Trump’s mega-bill, and if removed, lawmakers may need to find the revenue elsewhere, Bunn said.

However, House Ways and Means Republicans may ultimately want foreign countries to adjust their tax policies before the new tax is imposed.

“If these countries withdraw these taxes and decide to behave, we will have achieved our goal,” Smith said in a June 4 statement.

Personal Finance

Forgotten 401(k) fees cost workers thousands in retirement savings

Published

2 days ago

June 7, 2025

Business Finance News

With more Americans job hopping in the wake of the Great Resignation, the risk of “forgetting” a 401(k) plan with a previous employer has jumped, recent studies show.

As of 2023, there were 29.2 million left-behind 401(k) accounts holding roughly $1.65 trillion in assets, up 20% from two years earlier, according to the latest data by Capitalize, a fintech firm.

Nearly half of employees leave money in their old plans during work transitions, according to a 2024 report from Vanguard.

However, that can come at a cost.

For starters, 41% of workers are unaware that they are paying 401(k) fees at all, a 2021 survey by the U.S. Government Accountability Office found.

In most cases, 401(k) fees, which can include administrative service costs and fees for investment management, are relatively low, depending on the plan provider.

But there could be additional fees on 401(k) accounts left behind from previous jobs that come with an extra bite.

Fees on forgotten 401(k)s

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Former employees who don’t take their 401(k) with them could be charged an additional fee to maintain those accounts, according to Romi Savova, CEO of PensionBee, an online retirement provider. “If you leave it with the employer, the employer could force the record keeping costs on to you,” she said.

According to PensionBee’s analysis, a $4.55 monthly nonemployee maintenance fee on top of other costs can add up to nearly $18,000 in lost retirement funds over time. Not only does the monthly fee eat into the principal, but workers also lose the compound growth that would have accumulated on the balance, the study found.

Fees on those forgotten 401(k)s can be particularly devastating for long-term savers, said Gil Baumgarten, founder and CEO of Segment Wealth Management in Houston.

That doesn’t necessarily mean it pays to move your balance, he said.

“There are two sides to every story,” he said. “Lost 401(k)s can be problematic, but rolling into a IRA could come with other costs.”

What to do with your old 401(k)

When workers switch jobs, they may be able to move the funds to a new employer-sponsored plan or roll their old 401(k) funds into an individual retirement account, which many people do.

But IRAs typically have higher investment fees than 401(k)s and those rollovers can also cost workers thousands of dollars over decades, according to another study, by The Pew Charitable Trusts, a nonprofit research organization.

Collectively, workers who roll money into IRAs could pay $45.5 billion in extra fees over a hypothetical retirement period of 25 years, Pew estimated.

Another option is to cash out an old 401(k), which is generally considered the least desirable option because of the hefty tax penalty. Even so, Vanguard found 33% of workers do that.

How to find a forgotten 401(k)

While leaving your retirement savings in your former employer’s plan is often the simplest option, the risk of losing track of an old plan has been growing.

Now, 25% of all 401(k) plan assets are left behind or forgotten, according to the most recent data from Capitalize, up from 20% two years prior.

However, thanks to “Secure 2.0,” a slew of measures affecting retirement savers, the Department of Labor created the retirement savings lost and found database to help workers find old retirement plans.

“Ultimately, it can’t really be lost,” Baumgarten said. “Every one of these companies has a responsibility to provide statements.” Often simply updating your contact information can help reconnect you with these records, he advised.

You can also use your Social Security number to track down funds through the National Registry of Unclaimed Retirement Benefits, a private-sector database.

In 2022, a group of large 401(k) plan administrators launched the Portability Services Network.

That consortium works with defined contributor plan rollover specialist Retirement Clearinghouse on auto portability, or the automatic transfer of small-balance 401(k)s. Depending on the plan, employees with up to $7,000 could have their savings automatically transferred into a workplace retirement account with their new employer when they change jobs.

The goal is to consolidate and maintain those retirement savings accounts, rather than cashing them out or risk losing track of them, during employment transitions, according to Mike Shamrell, vice president of thought leadership at Fidelity Investments, the nation’s largest provider of 401(k) plans and a member of the Portability Services Network.

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