If you're like most people, you probably dream about a retirement in which you can spend time doing the things you love with the confidence that comes from knowing you have enough money to cover your bills as they arise. These days, living out this dream often requires hundreds of thousands -- if not millions -- of dollars in retirement savings, due to longer average life expectancies and rising costs.
But that doesn't necessarily mean you must put thousands of dollars in your 401(k) each month. Some workers may be able to retire as millionaires by saving as little as $6 per day.
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Reach $1 million by saving just $6 per day
Two key factors determine how much your retirement savings will be worth over the long term. The first is how much money you put away. If you save $200 per month for retirement, you'll reach your savings goal faster than someone saving $100 per month.
The other factor is your investment earnings over time. These aren't always easy to predict. It's possible to lose money investing in the stock market, though you're more likely to gain money over the long term if you diversify your savings and avoid trying to time the market.
The longer you invest, the greater your investment earnings will likely be. That's why it's worth saving for retirement as early as possible, even if you can only spare a few dollars a pay period.
If you were to begin saving $44 per week -- about $6.29 per day -- at age 25 and continue until age 65, you would have over $1 million, assuming you earned a 10% average annual rate of return over those 40 years.
This illustrates the power of investment earnings and starting early. But it doesn't mean you should just toss $44 in your retirement account per week and call it good.
A few caveats
First, $44 per week works in this specific circumstance, but it may not apply to you. You may have less time until retirement, or you may not earn a 10% average annual rate of return. In both of these cases, you'd need to save more per week to reach the goal of retiring a millionaire.
Plus, there's no guarantee that $1 million will be enough for you to live comfortably. That depends on your life expectancy, the type of lifestyle you hope to have, and where you live, among other factors. It's important to figure out how much you need to save for your retirement goals and work toward this, rather than toward an arbitrary target like $1 million.
It's not all bad news, though. You may receive a 401(k) match at some point during your career. These matches could be worth hundreds or thousands of dollars today. By retirement, they could be worth tens of thousands of dollars or more. That's why it's important to claim your match whenever you can afford to. It can significantly reduce the amount you need to save on your own for retirement.
You'll also get money from Social Security as well, though it's difficult to say how far your checks will go in the future. The program's trust funds will be depleted in about a decade. Washington will likely come up with a fix before then, but benefit cuts remain a possibility.
For this reason, it's best to plan to cover as many of your retirement expenses as possible on your own. You can set a target savings amount -- like $44 per week in our example -- but if you find yourself with some extra cash, it's a good idea to save more.
