Nearly everyone dreams of becoming a millionaire, but few are able to actually achieve that status. This is especially true when it comes to retirement -- the median amount baby boomers have saved across all their retirement accounts is just $152,000, according to a survey from the Transamerica Center for Retirement Studies.
That doesn't mean it's impossible, though, to have $1 million saved by the time you retire. In fact, it may even be a good goal to shoot for.
How much you need to retire depends highly on your unique situation, so there's no one-size-fits-all approach on how much to save. But the average person age 65 and up spends around $46,000 per year, according to the Bureau of Labor Statistics. If you spend that much over 25 years (not accounting for inflation), it comes to a total of around $1.15 million.
It should come as no surprise that the earlier you start saving, the easier it is. Not only do you have more time to save, but with compound interest on your side, your money can grow exponentially the longer it sits untouched in your retirement account.
But no matter how old you are, it is possible to save $1 million by age 65 -- if you're willing to work for it.
If you start saving at age 20, you'd need to save around $300 per month earning a 7% annual rate of return on your investments to reach $1 million by age 65.
Keep in mind that you won't see a 7% annual return every year for 45 years. The market fluctuates on a daily basis, and you may see higher returns some years and lower returns others. But over time, the highs and lows should balance each other out so you still see a positive return overall.
Another factor to consider is that you don't necessarily have to save $300 every single month for 45 years to reach $1 million. Especially when you're younger, you may not have that much to contribute to your retirement fund. So you may, for example, contribute $150 per month for 10 years, then $300 per month for another 10 years, then $500 each month for the next 25 years. Your salary will likely increase as you age, so it may be easier to start smaller and then ramp up your savings as your income grows.
By starting to save at age 30, you'd need to stash away roughly $600 per month for 35 years to reach $1 million.
Your 30s are a prime time to kick your savings into high gear. You may not have reached your peak earning years yet in your career, but you have a few decades left before retirement, so you still have time to let compound interest do its job.
However, this period in life is also a challenging time to save. You may have a mortgage, kids, and a dozen other financial responsibilities pulling your wallet in different directions. If you're struggling to make retirement a priority, consider setting up automatic transfers from your bank account to your retirement account. That way, you're essentially forcing yourself to put something aside for retirement before you can spend it elsewhere.
Once you hit your 40s, you should be seriously ramping up your retirement savings. If you haven't yet started saving and want to reach the $1 million mark by 65, you'll need to save around $1,400 per month.
Is that a feasible goal for most people? Realistically, probably not. But that doesn't mean you can't still aim high and save as much as you can.
To jump-start your savings, the first thing to do is create a budget to see where your money is going. You may be overspending in certain areas without realizing it, and you can potentially save hundreds of dollars per month by trimming the fat and eliminating unnecessary expenses. You may not be able to find $1,400 per month hidden in your budget, but you can save more than you previously thought.
To save $1 million in just 15 years, you'd need to save a whopping $3,500 every month. That may not be possible for most people, but it doesn't mean you should give up on saving altogether. You may, however, need to make some dramatic changes if you want to be able to retire comfortably.
Once you establish a budget and make as many cuts as you can, if you're still not saving enough, you may need to pick up a side job and dedicate all of that income to your retirement fund. Another option is to consider downsizing your home to potentially save hundreds of dollars per month on your mortgage payment. (And by moving to a smaller home, you may also save on upkeep costs as an added bonus.)
Regardless of what age you start saving, don't forget about perks like employer matching 401(k) contributions, if your company offers them. If your employer matches a portion of your savings each month, that lifts some of the financial burden from your shoulders.
You'll also have Social Security benefits to take some of the weight as well. While you shouldn't depend on your benefits to make ends meet during retirement, they can add some cushioning if your savings aren't quite as strong as you hoped they'd be.
The bottom line
The moral of the story when it comes to retirement is that earlier is better. The sooner you begin saving, the less you have to save every month to achieve significant gains.
In addition, just because you may be behind on your savings doesn't mean all hope is lost. If you can't save $1 million by age 65, don't give up on your goals entirely; saving even a few hundred thousand dollars by retirement age is far better than nothing. The most important thing you can do is to simply start saving sooner rather than later.