The average American wants to retire with over $1 million—saving alone won’t get you there, says self-made millionaire

The idea of simply saving for retirement may be a misnomer, says Vivian Tu, a self-made millionaire and author of “Rich AF: The Winning Money Mindset That Will Change Your Life,” which will be released in December. “Don’t save to retire,” she tells CNBC Make It. Instead, “invest to retire.” Americans in their 20s think they’ll need around $1.2 million on average to retire comfortably, according to Northwestern Mutual’s “2023 Planning and Progress Study.” But stashing your money in a traditional savings account probably won’t get you there by the time you hit retirement age because your money won’t grow fast enough. However, retirement investment accounts typically earn a much higher rate of return than a traditional savings account, so your money grows faster when interest is compounded. Say you start saving at age 21. If you contribute $100 a month into a retirement investment account that generates a 7% annual rate of return, you’d have nearly $354,600 saved up by age 65, according to CNBC’s calculations. On the other hand, you’d have significantly less if you put that money into a traditional savings account, which generally earn returns less than 1%, per the FDIC’s data. If you put that same $100 into a regular savings account, you’d only have around $66,300 by the time you turn 65, per CNBC’s calculations. It’s important to note that many things can impact your retirement portfolio and these calculations don’t account for unpredictable factors such as market volatility, periods of unemployment or promotions.

How to get started investing

If you want to begin investing for retirement, you have plenty of options. One way to start is by utilizing your employer’s 401(k) plan, if available. With this, your contributions are automatically taken out of your paycheck pre-tax, which lowers your taxable income for the year. Those contributions are then able to grow tax-free since you don’t owe any taxes until you withdraw the money in retirement, provided you follow all of the withdrawal rules. And in many cases, your employer may offer to match your contributions up to a certain percentage, which can help you reach your retirement goals faster. Another option is a Roth individual retirement account. Unlike an employer-sponsored 401(k), anyone can open a Roth IRA on their own through a brokerage firm, provided they fall within certain income limits. You make contributions to this type of account with money you’ve already paid taxes on, which means you can make tax-free withdrawals after you turn 59½, as long as the account has been open for at least five years. Ultimately, savvy investing helps your money to grow exponentially, even after you stop working. “You need to invest to retire because you can only work for so many years of your life, whereas your money can work for you that entire time,” Tu says. “It’s like having a little employee who is working behind you and working just as hard.”