If your retirement savings have reached a high of $100,000, congratulations! That means you’ve already saved more money than many other Americans.
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However, now is not the time to be satisfied with the status quo. Since your retirement is likely to last 30 years or more, it will require more than $100,000 to fully fund it. But when your retirement account balance reaches six figures, it’s often a good time to take a break and make sure the rest of your financial life is in order, too.
Here are some financial steps you should take when your retirement savings reach $100,000.
While having $100,000 in your retirement account is a great step toward ensuring your long-term financial security, racking up debt along the way is a sure recipe for disaster. With credit card interest rates currently averaging around 25%, any debt you have can spiral out of control quickly.
If you have to divert cash flow to pay down debt, you can’t invest that money. If you have more than $100,000 in a retirement account, now may be a good time to pause those investments and pay down debt.
An emergency fund is the cornerstone of any solid financial plan. Even if you have six figures in your retirement account, it won’t do you much good if you encounter a financial emergency.
If your car breaks down or you need to pay for some uncovered medical expenses, taking the money out of your retirement account may actually make things worse. If you’re younger than 59 1/2, you’ll not only be deprived of your retirement benefits, but you’ll also be subject to income taxes and early withdrawal penalties.
The other option—debt—is equally unattractive. Saving an emergency fund of at least $1,000—ideally three to six months’ worth of income—is an important step toward staying solvent over the long term.
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While having $100,000 in retirement savings is nothing to sneeze at, it’s also not enough to fund a potentially long lifetime.
Once you’ve saved that much money, you’ve proven to yourself that you have enough financial discipline to save more. Now, you can slowly increase the amount in your retirement account so that you can eventually have a larger savings.
For example, if you have $100,000 now and save $100 per month at age 40, you would have approximately $829,000 if you retired at age 65 and earned an 8% annual return. If you could increase that to $300 per month, your account would end up being close to $1.02 million. An increase of approximately $191,000.
