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4 Steps to Retiring a Millionaire

By Katie Brockman – Sep 3, 2019 at 5:45PM

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It can be done, even if you're earning only an average salary.

When you think of retiring with $1 million in savings, you may picture living a life of luxury. But although $1 million is a lot of money, you may need at least that much just to cover all your daily living expenses in retirement.

The average American is living longer than ever, with a third of today's 65-year-olds expected to live until at least age 90, according to the Social Security Administration. Say you retire at age 65 and live until age 90, and you're spending $45,000 per year in retirement. At that rate retirement will cost roughly $1.125 million -- and that's not even accounting for inflation.

Jar full of hundred dollar bills

Image source: Getty Images.

The good news is that it is possible to retire as a millionaire, even if you're earning an average salary. The key is to create a savings plan to reach your goal, then start saving as early as you can. And there are a few steps to follow to ensure you're on the right track.

1. Decide at what age you want to retire

The age at which you retire will affect the rest of your retirement. Retire too early and you may run out of money too soon -- not to mention that you'll have fewer years to save when you retire sooner rather than later. But at the same time, you still want to retire early enough that you can enjoy your golden years while you're relatively young and healthy.

One factor to think about when choosing your retirement age is your life expectancy. Nobody can predict exactly how long they'll live, of course, but if you're fit as a fiddle and everyone in your family has lived into their 90s or beyond, there's a good chance you'll spend a long time in retirement. On the other hand, if you have health issues (or a family history of health issues), you might not have to prepare for a lengthy retirement. The longer you live, the longer you may be able to delay retirement -- and the more time you have to save.

How much you currently have saved for the future is another factor to consider. If you're determined to retire a millionaire but you're in your 40s with nothing saved, you probably won't be able to retire at 60 (at least unless you seriously supercharge your savings). But if you have a healthy nest egg so far, you might be able to retire in your early 60s with at least $1 million if you continue building your savings.

2. Calculate how much you need to save each month to reach your goal

As with any goal, you'll need to have an action plan before you can achieve it. To retire with $1 million or more, it's important to know how much you'll have to save each month to reach your goal by retirement age.

First, use a retirement calculator to see just how much you should be aiming to save by retirement age, as well as what you'll need to save each month. Saving $1 million is a good benchmark, but it won't be the right goal for everyone. Some people may be able to get by on less, while others could need much more.

As you're calculating your retirement number, one key consideration is how much you expect to spend each year once you retire. That number may be similar to what you're spending now, or it could be significantly more or less. Social Security benefits also come into play here, so it's important to determine how much you'll expect to spend each year as well as what you'll be receiving from Social Security. From there, you can figure out how much of your retirement income will need to come from your own savings.

Once you know how much you should be aiming to save by retirement age as well as what you'll need to save each month to get there, it's time to take action and begin saving.

3. Make sure you're saving aggressively enough in the stock market

One often-overlooked factor of retirement planning is where you should invest your money. It's important to think about, though, because if you're not earning a high enough rate of return on your investments, it will be incredibly difficult to save at least $1 million.

For example, say you're stashing your cash in a savings account earning 2% interest. If you have 30 more years to save and you want to reach $1 million in savings by the time you retire, you'll need to save around $2,100 per month to achieve that goal. For many people, that's incredibly challenging or even impossible. That's why the best way to accumulate a significant amount of savings in just a few decades is to invest in the stock market.

Now, the stock market can seem scary, but it's not as risky as it may seem -- as long as you're smart about where you put your money. Diversification is key, and investing in index funds and mutual funds can help you earn relatively high rates of return while still limiting your risk as much as possible. These funds are essentially large collections of stocks, allowing you to invest in dozens or even hundreds of different stocks at once. You'll still experience ups and downs as the market shifts, but over time, you'll likely see your money grow exponentially.

4. Establish a budget and see where you can make cuts

At this point, you know at what age you'd like to retire, you know how much you should be saving, and you're investing aggressively enough to reach that goal. The last step is to make sure you actually have enough cash to save.

If you're behind on your savings, this part might be tough. You'll likely need to save several hundred dollars per month or more if you want to retire a millionaire, and the less time you have to save, the more you'll need to save each month to make up for it. Before you give up and assume it's an impossible goal, create a budget and see where all your money is going. It might be easier than you think to save more each month.

When creating a budget, you can either do it the old-fashioned way or by using an app that tracks your spending automatically. Either way, make sure you're tracking all your expenses and breaking them down by category. Set spending limits for each category, and see if you can make any cuts anywhere in your budget. Sometimes, saving even $20 to $30 per category could help you save hundreds each month. Allocate all that cash to your retirement fund, and you're on your way to reaching your retirement goals.

Retiring a millionaire isn't easy, but it is possible -- even if you're not earning six figures. If you're willing to put in the work now, it can ensure you're setting yourself up for the best retirement possible.

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