I want to retire a millionaire, so I showed my portfolio to a financial planner and he said 4 mistakes are holding me back

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• I want to retire a millionaire, so I asked a financial planner to look at my strategy so far.
• He said I need more tax diversification and income streams, and a plan for retirement income.
• He told me I need to contribute to my retirement account more often, not randomly throughout the year.

For the past two years, I've been working hard to reach my goal of retiring as a millionaire. I knew this would be a challenge, since I only started saving for retirement in my early 30s, but I still decided it was something I wanted to achieve so I could spend my later years living comfortably.

While I took some steps to start putting this plan into motion, like opening a SEP IRA and adjusting my spending habits, I knew I had a lot more work to do. That's why I found a financial advisor: I asked financial planner Adam Scherer to review my retirement portfolio and tell me if I'm on track to retire as a millionaire. He said I'm making four mistakes that are holding me back from reaching my future goal. 

1. I only contribute to my SEP IRA a few times a year 

Ever since opening up my first retirement plan at the age of 30, I vowed to make frequent contributions to my SEP IRA. At first, I was good about depositing money monthly. But as time went on, I found myself forgetting to do this or just tempted to use that cash on purchases instead.

Scherer says one main downside to not contributing monthly is that I'm missing out on opportunities to buy into investments when they are potentially priced lower due to normal market or economic fluctuations. 

One way to fix this mistake is to automate my contributions. Scherer says that setting up a monthly automatic transfer to my SEP IRA will put less pressure on my overall cash flow and help me develop a positive retirement savings habit that could pay off in the long run. 

2. I don't have any tax diversification 

When I opened up my SEP IRA a few years ago, I thought that was the only account I needed to help me plan for retirement. It turns out I was wrong.

Scherer says that tax diversification, the strategy of having assets in accounts with varying tax treatments (such as tax-deferred, taxable, and tax-free accounts), allows for a smoother retirement income strategy and generates tax savings. 

"If your invested assets are located in a single account type, the options available to meet your retirement income needs in a tax-efficient manner become more limited and could result in additional taxation," says Scherer.

To help my retirement savings grow, Scherer recommends establishing accounts with varying tax treatments. For example, as a self-employed individual, I can have my SEP IRA as a tax-deferred account, a brokerage account, which is taxable, and a Roth IRA, which offers tax-free withdrawals.

"Over time, adjust the location of your contributions so the result is a balanced, tax-diversified allocation as you head into retirement: 33% in taxable accounts, 33% in tax-free accounts, 34% in tax-deferred accounts," says Scherer. 

3. I don't have a retirement income strategy

Even though I want to retire as a millionaire, I don't have a viable plan in place to help me achieve that goal. 

Scherer points out that if I want to reach this goal, I need to account for variables like my earnings, the length of time until retirement, the length of time I'll be in retirement, the effect of inflation on the value of my savings, an estimate of my living expenses throughout retirement, additional savings for contingencies (traveling, health-related issues, gifting), and a required rate of return on my invested assets to get me to my goal in the timeframe I desire. 

To begin figuring out this strategy, Scherer recommends using a retirement calculator or working closely with a financial planner.

4. I don't have enough income streams 

Aside from my businesses and side hustles, I don't have many other fluid streams of income. 

"Your current earnings provide you with the opportunity to spend on things that you value today and save for your future self," says Scherer. "By having more sources of income, whether active (earnings), passive, or portfolio, a balance of saving and spending that truly aligns with your values and dreams becomes easier."

Scherer says one way to develop a passive income stream is to allocate investments to income-generating vehicles, such as dividend-paying stocks or coupon-bearing bonds. He also recommends looking into rental real estate or investing as a silent partner in other businesses as another passive income generator.

"Ultimately, any of these alternatives need to be reviewed and selected only if they align with your overall retirement strategy and personal values," says Scherer.

This article was originally published in June 2022.