A step-by-step guide to retiring a millionaire.
Retirement is becoming more expensive than ever, and there’s a chance you’ll need at least $1 million to enjoy your senior years comfortably.
While that’s a daunting goal, it’s more achievable than it may seem. You don’t need to be a stock market expert to reach $1 million in savings by age 62, but you will need the right strategy. Here’s exactly what you’ll need to save each month to accomplish this goal.
Investing in the right places
Most workers have access to a 401(k) or IRA, which is a great place to start. But it’s important to make sure you’re investing aggressively enough for your age.
Your asset allocation is how your investments are divided up in your portfolio. Most people have a mix of stocks and bonds. Stocks carry more risk than bonds, but they also generally see much higher returns over time.
When you still have a few decades left until retirement, investing more heavily in stocks can be a smart move. While your portfolio may be more affected by short-term market volatility, it will be far easier to save a significant amount over time. As you get older, then, your portfolio should gradually shift toward the conservative side.
A common rule of thumb is to subtract your age from 110, and the result is the percentage of your portfolio to allocate to stocks. So if you’re 35 years old, for instance, roughly 75% of your portfolio might be made up of stocks, with 25% allocated to bonds or other conservative investments.
With proper asset allocation, you can ensure you’re protecting your savings against volatility while still maximizing your long-term returns — which will make it much easier to reach $1 million or more.
Building a million-dollar retirement fund
Time is your most valuable asset when saving for retirement, and the more years you have to save, the less you’ll need to contribute each month.
The amount you’ll have to save monthly will also depend on the returns you’re earning on your investments. This will vary by person. If you’re investing in a 401(k) or IRA, your returns may differ from those of someone who’s investing in individual stocks, for example.
The stock market itself has earned an average rate of return of around 10% per year, historically. To be on the safe side, let’s assume your savings are earning a modest 8% average annual return. At that rate, here’s what you need to invest each month to reach $1 million, depending on how many years you have to save:
| NUMBER OF YEARS | AMOUNT SAVED PER MONTH | TOTAL RETIREMENT FUND VALUE |
|---|---|---|
| 20 | $1,900 | $1.043 million |
| 25 | $1,200 | $1.053 million |
| 30 | $750 | $1.020 million |
| 35 | $500 | $1.034 million |
| 40 | $325 | $1.010 million |
DATA SOURCE: AUTHOR’S CALCULATIONS VIA INVESTOR.GOV.
To retire with at least $1 million by age 62, the amount you’ll need to save each month will depend largely on how many years you have left to save. The earlier you get started, the easier it will be to build a robust nest egg.
Even if you’re off to a late start, though, that doesn’t mean all hope is lost. Regardless of how long you have to invest or how much you can afford to save each month, it’s far better to invest even a little now than to put it off. You can always increase your savings later, but you’ll never get this valuable time back.
Reaching millionaire status isn’t easy, but it is achievable with enough time and consistency. By getting started now and investing as much as you can afford each month, you’ll be one step closer to retiring a millionaire.