Reaching millionaire status is something many people dream about, but few are able to achieve. However, with retirement costs soaring and retirees living longer, $1 million may be a reasonable goal if you want to enjoy your senior years comfortably.
The good news is that although saving $1 million may be a daunting goal, it is possible. And if you're able to max out your 401(k) year after year, you could reach this target well before the traditional retirement age.
How to save $1 million by age 50
No matter how much you're trying to save, time is your most valuable asset -- so it pays to start saving as early as possible. The earlier you begin stashing cash in your retirement fund, the less you'll need to save each month to reach your goal.
As of 2020, the maximum amount you can contribute to your 401(k) is $19,500 per year, which comes out to $1,625 per month. At that rate, assuming you're earning an annual 7% rate of return on your investments, it would take around 23 years to accumulate $1 million in savings. In other words, if you wanted to save $1 million by age 50, you'd need to start maxing out your 401(k) each year starting at around age 27.
Keep in mind, though, that these calculations don't account for the IRS' yearly adjustments to the maximum amount you can contribute to your 401(k). Depending on how much more the IRS allows investors to contribute each year, that could affect when you reach your goal. In addition, you're eligible to contribute an extra $6,500 per year to your 401(k) once you reach age 50. So if you haven't quite reached the $1 million mark by this age, you can start supercharging your savings.
What to do if you're behind on your savings
For many people, saving $1,625 per month starting in your 20s is simply unrealistic. That's OK, though, because there are other ways to build a healthy nest egg.
Let's say, for example, you got off to a late start and didn't start saving until age 40. If you were to max out your 401(k) each year (while also taking advantage of the $6,500 per year in catch-up contributions once you turn 50), you could save $1 million by age 62.
Some people may not be able to afford to max out their 401(k) at all, especially right now when money is tight for millions of U.S. families. In that case, saving whatever you can is better than nothing. Saving even a couple hundred dollars per month can add up to hundreds of thousands of dollars over time, so don't give up on your goals just because you can't max out your retirement account.
Saving $1 million is a lofty goal, but it may be within reach if you contribute to your retirement fund consistently. Even if you can't save quite that much, saving anything at all is still beneficial. By saving as much as you can afford, you'll give yourself a better shot at achieving your retirement goals.