Everyone doesn’t need $1 million for retirement. But you might, if you don’t have a lot of guaranteed income sources after you’ve stopped working or think you’ll have high expenses.
Saving for this goal can seem intimidating. But with some planning, hard work, and discipline, it can be done. Here’s how.
Slow and steady wins the race
Saving $15,500 a year for 20 years would grow your accounts to $1,011,949.
Having time on your side clearly helps. You can save two-thirds less each year if you have 30 years to save instead of 20. One of the benefits of starting late, though, might be that people typically earn more each year and can afford higher contributions. Households with wage earners between the ages of 25 to 34 have an average total income of about $49,482, while homes with individuals between the ages of 45 and 54 have average total earnings of $73,512.
Small tweaks can add up big
Creating a budget, tracking your monthly spending, and distinguishing between things you want and things you need can help determine which expenses to eliminate. You don’t have to get rid of everything you enjoy doing, but by reducing some of your unnecessary spending like streaming services and dining out, you can redirect this money toward saving for retirement.
Achieving this goal with less risk
In exchange, you’ll give up some returns — how much depends on your asset allocation model. A portfolio consisting of 60% stocks and 40% bonds earned an average annual return of 8.77% from 1926 through 2019. With this rate of return, you’d need to save $7,250 each year for 30 years, and you would end up with $1,029,833; or $12,000 a year for 25 years for $1,024,008.
You can save $1 million for retirement without making a ton of money each year. Even if you can’t save the exact amount needed every year, saving whatever you can now will help ensure that you’re not starting from zero. Having a concrete plan that involves consistently saving, and investing can help.
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