Building a retirement fund worth $1 million or more may sound like a lofty goal, but as costs continue to rise, it may be a realistic target.
The average worker expects to need around $1.7 million to retire comfortably, according to a 2022 survey from Charles Schwab. If your city has a high cost of living, if you expect your costs to increase in retirement, or if you plan to retire early, you could need even more.
Fortunately, retiring a millionaire is more attainable than many people think. Although it isn't necessarily easy, these four steps can help you accumulate $1 million in savings while barely lifting a finger.
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1. Start saving as early in life as possible
The more time you have to save, the less you'll need to invest each month to reach your goal. This is thanks to compound earnings, which help your money grow exponentially the longer it has to accumulate.
For example, say you want to save $1 million by age 65, and you're earning a modest 8% average annual return on your investments. If you start saving at age 25, you'd need to invest around $325 a month to reach your goal. But if you wait until, say, age 40 to start saving, you'd have to invest roughly $1,200 per month, all other factors remaining the same.
This doesn't mean that all hope is lost if you're off to a late start. Regardless of your age or how many years you have left to save, it's far better to begin now than to put it off. Every single year counts, and if you start now, you'll thank yourself later.
2. Set your savings on autopilot
Consistency is key to building a robust retirement fund, and setting up automatic contributions can help keep your savings on track. It can also make it easier to build savings into your budget, so you're not scrambling to save whatever scraps you have left over at the end of the month.
If you're investing in a 401(k), you may be able to set up automatic transfers straight from your paycheck to your retirement fund. With an IRA, you can have a set amount of money transferred from your bank to your retirement account on the schedule you choose.
3. Invest aggressively (but not too aggressively)
The mix of investments within your portfolio can potentially make or break your savings.
Investing primarily in bonds and other conservative investments may seem like the safer option, as they're less affected by market volatility. However, bonds generally earn much lower returns than stocks, which will make it significantly harder to save a lot of money over time.
When you're young and still have decades left until retirement, it's wise to invest more aggressively in stocks and less in bonds. If the market takes a turn for the worse, your investments still have plenty of time to recover before you need those savings.
That said, investing too aggressively is also risky. Short-term stocks that promise to make you rich overnight will almost always result in losing more than you earn. A safer option is to stick to long-term investments with the potential for slow but steady growth over time.
4. Don't get discouraged
It takes decades to build wealth in the stock market, but the longer you give your money to grow, the faster it will accumulate. It's normal if your savings are off to a slow start, so try not to get too discouraged. Instead, stay focused on your long-term goals.
Getting started is often the hardest part of saving for retirement, but once you have a strategy in place, it can be an effortless process. By getting started now, setting your savings on autopilot, and choosing the right investments, you'll be on your way to building a million-dollar retirement fund.
