If you've reached the lofty level of $100,000 in retirement savings, congratulations! This means you've already thrown away more than many other Americans.
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However, this is not the time to rest on your laurels. Because your retirement could very well last 30 years or more, it will cost more than $100,000 to fully fund it. But with a six-figure retirement account balance, 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 steps you should take with your finances once your retirement savings reach $100,000.
While having $100,000 in your retirement account is a good step toward securing your long-term financial security, having debt along the way is a surefire recipe for disaster. With credit card interest rates now averaging around 25%, any debt you carry can quickly spiral out of control.
If you have to divert your cash flow to pay off your debts, that's money you can't throw away on your investments. If you have more than $100,000 in your retirement account, it might be a good time to put those investments on hold and pay off your debts.
An emergency fund is the cornerstone of any solid financial plan. Even if you have six figures in your retirement account, it won't help you much if you're in a financial emergency.
If your car breaks down or you have to pay uncovered medical expenses, taking that money out of your retirement account can make things even worse. Not only are you robbing your pension, but you'll also pay income taxes and an early withdrawal penalty if you're under 59 1/2.
The other option – taking on debt – is equally unattractive. Putting away at least $1,000 in an emergency fund—and ideally three to six months of your income—is an important step to staying solvent in the long term.
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While having $100,000 in retirement savings is nothing to sneeze about, it's also not enough to fund a potential longevity.
Once you've saved that much money, you've already proven to yourself that you have the financial discipline to save even more. Now you can slowly increase the amount you contribute to your retirement account, creating an even bigger savings pot.
If you have $100,000 now and save $100 a month at age 40, you will have about $829,000 when you retire at age 65 and earn an 8% annual return. If you can increase that to just $300 per month instead, your account will be closer to $1.02 million. That's an increase of about $191,000.
