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Double the Value of Your Retirement Account in Five Years

by Laura Adams

Does the thought of doubling your retirement money in five years get you pumped up? It doesn’t matter if your money is in a workplace retirement plan or an IRA, you can accomplish this goal. Keep reading and I’ll show you how to do it without rolling the dice on risky investments.

Example of How to Double Your 401(k) Retirement Money in Five Years

Let’s start with a typical example: Say you earn $40,000 a year and have a 401(k) that’s worth $20,000. If you decide to contribute 8% of your gross income to your 401(k), that’s $3,200 a year.

You’re doing a great job at work, right? So you’ll probably get a raise or even a promotion in the next five years—but I’m going to be conservative and assume that you don’t. You also might be getting a juicy employer match on top of your contributions, but I’ll also assume that you have a stingy boss who doesn’t kick in a dime.

If you contribute $3,200 a year, that’s $267 per month. When you crunch the numbers, all it will take for your portfolio to double in value to $40,000 in the next five years is an average return of 2.7%! That’s entirely doable. If you have a more growth-oriented portfolio with a moderate 6% return, your 401(k) would be worth over $45,600 in five years.

Example of How to Double Your IRA Money in Five Years

Just about everyone is eligible to make contributions to an Individual Retirement Arrangement or IRA, even if you don’t have a retirement plan at work. Let’s say you have $10,000 in a Roth IRA. What would it take to double that amount over the next five years? Using a moderate average return of 4%, you’d just need to contribute $120 a month to either a traditional or Roth IRA to double the value to $20,000.

And if you’re only starting out with $5,000, you could double it to $10,000 by contributing $60 a month, assuming a 4% average return. If you could make more aggressive investments and earn a 7% return, you’d have close to $18,500 by just maintaining those $60 monthly contributions for five years.

Why You Should Make Retirement Account Contributions

But consider what would happen if you decided to cut back and not contribute anything to your $20,000 401(k): It would take 26 years for your money to double at a 2.7% return! That’s right, 26 years. Or you’d need a 14% return in each of the next five years to make $20,000 grow to $40,000. That would be difficult to pull off because historically the S&P 500 Index of stocks has generated an average return of less than 10%, including dividends. So even putting your entire 401(k) nest egg in a risky portfolio of stocks probably wouldn’t allow your money to double within five years without making contributions

When you make regular contributions to your retirement plan at work or to an IRA, it’s like putting gas in your car. Your account gets the fuel it needs to go and to grow without having to expose your money to volatile investments that could stress you out and cause you to worry about your financial future.

Make It a Goal to Double Your Retirement Account in Five Years

If you want to make it a goal to double your retirement money within five years, find out what your account is earning on average. Then you can use one of the retirement calculators at dinkytown.com to do the math for you. If you need to increase your contributions at work, most plans give you online account access where you can log in and change your contribution rate and investment choices. For your IRA, set up an automatic transfer from your bank account right after pay day so those contributions are made while you sleep.

How Much Money Do You Need to Retire?

Instead of delaying your retirement planning, get started now. Read a previous article I wrote called How Much Money Do You Need to Retire? to find out what total nest egg amount is a good target for you. You may find that having an average retirement income is enough for your retirement needs, or you may find that your needs are larger than average. You can find more information regarding the various types of retirement plans available to you – regardless of whether you are employed in a traditional job, self-employed, or unemployed, in my new award-winning book Money Girl’s Smart Moves to Grow Rich.

You’ll accumulate so much more money by putting time on your side. Waiting until the last minute means you’ll be tempted to use higher-paying, risky investments at a time when you should really be moving your money into more conservative, safe investments. If you don’t want to do any calculations, a simple and smart rule of thumb is to always invest at least 10% of your income.


Published or updated January 18, 2013.
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1 JoeTaxpayer

Nice spin on the numbers, Laura. This will work for most people, I think.
We are closer to the back side of things, and the final double gets us to retirement. So, we’re at about 13X our annual income saved, and this final double will take the market return far more than out own deposits. Even saving 25%/yr is nothing compared to the next 10% rise in the market, adding 130% of a year’s income. But for the young folk out there, nice article.

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