In a perfect world, we'd all start socking away a substantial chunk of our incomes for retirement as soon as we enter the workforce. But in reality, many people don't start saving for retirement until their 30s or 40s. For some, it's even later.
Getting a late start can leave you understandably worried about whether you can save enough for retirement. The answer isn't as clear-cut as you might think. Below, we'll look at several factors that influence your likelihood of retiring a millionaire if you don't start saving until you're 50.
The 3 factors that influence your odds of becoming a retirement millionaire
Whenever you start saving, these three factors affect how much you ultimately end up with:
1. Your contribution amount
The more you're able to set aside each month for retirement, the more you'll end up with, assuming you've invested wisely and avoid early withdrawals. Your budget and the retirement account you choose dictate how much you can set aside.
For common tax-advantaged accounts, 401(k)s allow adults under 50 to contribute up to $20,500 in 2022, while IRAs only allow up to $6,000 in annual contributions. But adults 50 and older can contribute more to both types of accounts. The maximum contribution for adults 50 and up is $27,000 for 401(k)s and $7,000 for IRAs this year.
2. Investment rate of return
The value of your portfolio fluctuates over time based on the value of the investments you own. In some years, you might see your nest egg grow 30% or more. And in other years, you might lose money. Historically, the stock market has averaged about a 10% annual return over the long term.
But you can't bet on this. There's no way to know exactly how quickly your money will grow, so it's usually best to be conservative in your estimates. Plan for a 5% or 6% annual rate of return to be on the safe side. This way, you won't be caught off guard if your investments underperform.
3. How long your money has to grow
Someone who hopes to retire at 65 will have to save a lot more per month to retire a millionaire than someone who plans to retire at 80. If you haven't already thought about when you'd like to retire, now is the time to do so. Without this information, you can't figure out how much you need to save per month.
If you're not able to save as much as you'd like to, this is the easiest variable for you to adjust. Delaying retirement can help shore up a savings shortfall effectively, because it gives you more time to save while shortening the length of your retirement and allowing your investments more time to grow.
Putting it all together
So now we return to our question about whether it's possible to retire a millionaire if you have no savings at 50. The answer is technically yes. Anything is possible if you're motivated and have a lot of extra money to set aside on a regular basis. But let's look at a realistic example.
Let's say you're 50 years old and you'd like to retire by 70. That gives your savings 20 years to grow. If you plan for a 6% average annual rate of return, you'd have to save about $2,195 per month to reach your goal if you're starting from nothing.
That's going to be a stretch for most people. And if you don't have access to a 401(k), you might have trouble deciding where to put your money. You could be forced to use a taxable brokerage account, which doesn't have the same tax advantages as a retirement account, in order to set aside enough money each year.
If that's not feasible for you, you might still be able to retire a millionaire, but you'll have to adjust your expectations. Delaying retirement by five years may not be ideal, but it can cut your monthly savings goal from $2,195 to $1,472 per month. And you may be able to get by on even less than $1 million in personal savings, depending on your retirement goals and timeline.
Rather than aiming for this arbitrary number, try to determine how much you'll need to afford the retirement you want and then make adjustments to your plan as necessary. Don't forget to check in on your progress every year to see if you need to make any changes to your savings strategy.