The tricky thing about saving for retirement is that there's no single magic number that guarantees a lifetime of healthy income. That said, for many folks, retiring with $1 million is a goal worth aspiring to. And interestingly enough, 29% of U.S. adults today say they think they'll manage to become millionaires in their lifetime, according to data from GOBankingRates.
Now the truth is that while $1 million will buy some folks a more than comfortable retirement, those who are used to high living expenses may come to find that $1 million doesn't cut it. Still, if you're looking to reach that $1 million mark in time for your golden years, here's how to get it done.
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Start saving early on
A lot of the folks who retire with $1 million or more don't earn the big bucks. Rather, they commit to saving consistently and start doing so at a young age so that their money gets the maximum amount of time to grow. One major misconception about accumulating wealth is that you need to part with enormous chunks of cash along the way for a shot at an impressive sum. But not so. If you give yourself enough time to let compounding work its magic, you can get away with saving a modest yet respectable amount each month rather than giving up half your paycheck.
Check out the following table, which shows how much wealth you stand to build if you give yourself a 40-year savings window:
Monthly Savings Amount
Total Accumulated Over 40 Years
TABLE AND CALCULATIONS BY AUTHOR.
As you can see, setting aside just $400 a month will get you pretty darn close to $1 million over a 40-year period. Save $500, $600, or $700 a month instead, and you'll have well over $1 million to your name.
Of course, the above calculations assume a 40-year savings window, which not everyone has. But if you're willing to part with more money each month, you can get there as well. Case in point: Saving $900 a month over 30 years will give you the $1 million you're after, assuming that same 7% average return on investment. And while parting with $900 consistently will be trickier than setting aside half that amount, it's doable if you're willing to cut expenses and live below your means.
Invest your savings wisely
Though saving early and consistently is the key to growing wealth, the way you invest your savings will also play a big role in determining how much of a nest egg you end up with. In the above example, we saw that investing $500 a month over a 40-year period resulted in $1.19 million when we applied a 7% average annual return. Now that sort of return is more than attainable with a stock-heavy portfolio. In fact, it's actually a couple of points below the market's average.
The problem, however, is that most Americans invest too conservatively for retirement, which means they stay away from growth vehicles like stocks and instead focus on safer investments like bonds. So, they wind up stunting their savings' growth and retiring with much less.
Now imagine that in the above example, we apply a 3% average yearly return instead of 7%. That $500 a month over 40 years, in that case, would turn into a far less impressive $452,000. Granted, that may be enough to buy you a decent retirement. But if you're looking for that $1 million, it won't get you there. Rather, you'll need to be fairly aggressive in your investment approach if you're unable to part with thousands of dollars each month (which is probably the case for most of us).
Though there's no reason to fixate on hitting the $1 million mark per se, it's certainly not a bad objective to aim for. And if you give yourself the longest savings window possible and invest your money wisely, there's a good chance you'll one day join the ranks of those proud Americans who get to call themselves millionaires.
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