About 9,000 taxpayers have more than $5 million each in their individual retirement accounts, according to a recent report by the Governmental Accounting Office. The Governmental Accounting Office report is found here:
From our experience these IRA owners are similar to the stereotypical “Millionaire Next Door”—self-made, first-generation accomplished individuals who lead comfortable but far from extravagant lives. They have not employed creative means of attaining a large balance; they have built wealth the old-fashioned way, using some time-tested principles.
Start early and let the magic of compounding work for you. These financially successful individuals started early and let the power of compounding work. Warren Buffett’s biographer describes an early Buffett epiphany on the power of compounding, “He could picture the numbers compounding as vividly as the way a snowball grew when he rolled it across the lawn.”
Make maximum use of tax-deferred savings vehicles. The body of law governing pensions (ERISA) was designed to encourage employers and individuals to build retirement assets through tax-deductibility and tax-deferred accumulation. The well-advised have responded to incentives by maximizing their contributions. Maximizing pension contributions through an employer plan is vital. Generous limits that existed prior to the Tax Reform Act of 1986 were especially instrumental in getting the ball rolling for a select group of well-advised companies and individuals preparing for the future. 2014 Pension Plan Limitations are found here:
Stick with an investment discipline over the long-term. It certainly helps to begin an investment program at the beginning of a secular stock market cycle that extends over a couple of decades, such as the 1980s and 1990s. Sticking with an investment discipline, despite uncertainties in the world, reaps even bigger rewards, because the average investor gives up almost five percentage points per year by chasing performance.
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