How to Retire with a Million Dollars

Retiring as a millionaire isn't as out-of-reach as it may appear. With a bit of saving, investing, and planning, you might be well on your way to a million dollars – or more – by the time you hit retirement age.

Actually, the number of retired millionaires has hit an all-time high, according to the nation's largest provider of 401(k) savings programs, Fidelity Investments. Retirement savers with $1 million or more in their 401(k) balance jumped to 365,000 in the first quarter of 2021, while those with an IRA balance of $1 million or more increased to 307,600.

Here's how to retire as a millionaire:

Start saving well in advance

 

Saving is essential for achieving nearly any financial objective, particularly if you want to retire with a million-dollar portfolio. The secret, though, isn’t so much how much you save as it is when you start.

 

“One of the most important elements to success here is to take advantage of your most valuable asset: time,” said Tony Molina, CPA, and Wealthfront’s senior product specialist.

 

Most experts advise contributing at least 10% to 15% of your income to your retirement fund. But don't be discouraged if you can't contribute that much. Because of compound interest, saving any amount may put you far ahead of your retirement goals.

 

Compound interest indicates that the money you initially invest will increase over time, on top of the interest you pay in the future.

 

That is why getting started early is very important.

 

“Compounding may lead to enormous wealth accumulation,” Molina added. Even if it's only a few hundred bucks every month, it adds up.

 

Choose a number based on your age.

 

The earlier you start, the better, but you must also develop a strategy to achieve your goals.

 

“I see far too many folks save for retirement without a plan. They are just depositing money into an account without knowing whether they’re saving too much, too little, or exactly the right amount,” said Matthew Fleming, CFP and senior financial counselor at Vanguard Personal Advisor Services.

 

So, how much should you save? Everything depends on when you begin. Here are a few scenarios for reaching a million dollars in retirement, depending on when you start:

 

Starting at age 20:

Assuming a monthly compounded return of 6%, you should strive to save $364 per month for retirement to achieve $1 million by the age of 65.

Starting at age 30:

Assuming a monthly compounded return of 6%, you should strive to save $704 per month for retirement to achieve $1 million by the age of 65.

Starting at age 40:

Assuming a monthly compounded return of 6%, you should strive to save $1,444 per month for retirement to achieve $1 million by the age of 65.

Starting at age 50:

Assuming a monthly compounded return of 6%, you should strive to save $3,439 per month for retirement to achieve $1 million by the age of 65.

Invest the money

Saving early and continuously investing is the key to meeting your retirement fund targets, but what you do with the money you save will impact how quickly you build wealth.

 

According to the FDIC, most bank savings accounts today yield an average of 0.03% APY. If you invest it, it’ll go a lot further. Stocks, for example, can offer the growth required to establish a large enough retirement nest egg. In the previous century, the S&P 500 has returned an annualized average of around 10%. Most financial advisors advise combining stocks and bonds to diversify your retirement portfolio.

 

Another key consideration is the account type in which you invest.

 

A tax-deferred account, like a 401(k) or an IRA, allows you to delay paying taxes on the money you've invested until it's taken from the account, usually in retirement. Another advantage of a 401(k) is that your employer may supplement your retirement savings by contributing additional funds. Check to see whether your workplace provides matching contributions, and if it does, make sure you're contributing enough to get a full employer match. A Roth IRA, for example, lets you make contributions that have already been taxed but later grow and take the money tax-free.

 

However, with any account or investment, the younger you are, the more benefits you may derive from saving and investing your money.

 

“The longer time you have in the markets, the more you profit from the power of compounding, so getting in early is always recommended,” said Fleming.