Having 1 million dollars when you retire means that you have more choices in how you spend your golden years. It also sounds impossible, but in reality, it is not as far away as you might imagine. You have more than one route to achieving this goal, depending on your age and circumstances.
Saving 1 Million Dollars If You Are Young
If you are below the age of 25, you have it easy when it comes to having $1 million in retirement savings by retirement. It is difficult to start saving when you are working at an entry-level salary and barely making ends meet, but if you start saving even a little with your very first job, the route to becoming a millionaire by the time you retire is almost painless. The more time you have, the less you need to save to make your goals.
If you can save $3,900 per year at age 25, you will have $1 million by age 65, assuming an average 8% growth in the market. That is $325 per month, but that might sound like a lot when you have those hefty student loans to pay off. The trick is to learn to make saving a habit now. Even if you cannot save that amount, getting used to tucking away $25 of each paycheck will get you in the habit of saving and make it easier to stick to the habit when you have more money to invest.
Retirement Savings during Working Years
The key to earning $1 million is consistency. If you are in your 30s or 40s and have not started building your retirement savings, it is time to start. The longer you wait, the harder it will be. If you are age 40, you will need to tuck away $15,240 per year to reach your goal. That is $1,270 per month, and it can be more difficult if you are still supporting children at home and trying to pay down a mortgage.
If this is you, and you are employed, you need to do anything you can to boost your savings. If your employer offers a 401(k) with matching, make sure to take full advantage of it. Make sure that the investments you choose are low-cost to maximize your earnings. The extra that you save in fees will make a big difference when it comes to compounding.
Empty Nesters Can Still Make It
If you are at the point where your kids have left for college and making their own living, you are probably feeling the crunch. The good news is that you can also turn up the heat when it comes to how much you put away. It can be tempting to take some vacations and treat yourself, and doing this in moderation is a good thing. If you are in your mid-50s, if you and your spouse put away $22,500 per year in a 401(k), you still have a chance of making $1 million in retirement savings, especially if you bump your retirement age back a few years.
Regardless of where you are on your retirement journey and your journey to $1 million, there are some important rules that you must follow to be successful. The first is to mind your gaps in retirement savings. Periods of unemployment, starting a new job, and life, can cause a gap that can have a significant impact on how much is in the account working for you.
If you are starting late in the game, you need to be mindful of balancing safety with growth. You do not have time to recover from a significant loss. The most important key at any age is to avoid early withdrawals. For one, you will pay heavy fees and penalties, and this only compounds the loss of earnings. Having $1 million by retirement is not an impossible dream, but you must start now and be consistent.