Image source: Pixabay.

Putting it mildly, saving for retirement isn't easy.

We often have this grand illusion that retirement involves nothing more than saving some money, investing it, watching it grow over time, and retiring on some Caribbean island while we drink mojitos all day long. It's a great plan on paper, but life often gets in the way. Unexpected medical costs, losing a job, or starting a family are all costs (or losses) that could drastically change the trajectory of your retirement.

Ironically, one of the biggest issues for Americans is their poor savings habits. The Federal Reserve's 2014 Survey of Household Economics and Decisionmaking, which was released in March 2015, showed that 31% of non-retirees had absolutely no retirement savings, and another 38% either planned to never retire, or to work as long as possible. This certainly doesn't bode well for baby boomers who are about to enter retirement, and raises warning flags for younger generations who may not be saving as much as they should be. 

But, here's the thing about saving money and investing for your future: Even a small amount could have a big impact.

Image source: Flickr user Wes Peck.

Saving this much per week could make you a millionaire
Using Bankrate's retirement calculator, I set out to determine how much money would need to be saved each week for someone to become a millionaire. Here are some of the values I entered into Bankrate's retirement calculator:

  • Current age: 18 (because we should start saving as early as possible).
  • Age of retirement: 68 (used for simplicity purposes since it gives 50 years of saving potential).
  • Annual household income: $50,000 (the average American household earns around $51,000 annually, so I rounded down for simplicity).
  • Current retirement savings: $0 (assuming an 18-year-old is starting from scratch).
  • Expected income increase: 0% (this is highly unlikely, but used for simplicity).
  • Income required at retirement: 80% of prior annual income (it's quite common for your income to fall from your working years during retirement).
  • Years of retirement income: 25 (this might be a bit aggressive, but living to age 93 might be approaching the norm in five decades, when today's 18-year-olds retire).
  • Rate of return before retirement: 8% (the historical return of the stock market is 8% over the long term).
  • Rate of return during retirement: 4% (this is unchanged from Bankrate's default rate and accurately reflects a more diversified investment strategy).
  • Expected rate of inflation: 3% (also unchanged from Bankrate's default rate).

Additionally, I chose to include Social Security in the above calculations since a retiree would almost assuredly be relying to some degree on Social Security income during retirement.

Given the above figures, would you care to venture a guess as to how much you'd need to save each week, beginning at age 18, to reach $1 million?

Got your answer?

How many of you said $100? If so, you've overshot by a mile, but that's actually a good thing, so keep saving that money!

Image source: Flickr user Sh4rp_l.

In actuality, just $20 per week, or roughly $1,040 saved per year, would allow you to move from nothing saved to $1 million in value by the age of 93. Based on Bankrate's calculations, our fictitious investor would have almost $557,000 saved up when he or she retires at age 68, with the assumption that expenses would total $40,000 per year (80% of annual household income). This scenario also includes Social Security benefits totaling $31,357 per year. Those Social Security benefits would allow your nest egg to grow with minimal drawdown, reaching $1 million by your 93rd birthday.

If we remove Social Security from the equation, our investor would need to save nearly $37 per week beginning at age 18 in order to reach $1 million by retirement at age 68.

Two important takeaways
There are two key takeaways, here. First, even small amounts of money can have a substantial impact on your retirement. Do you think you could save $20 per week toward retirement? I'd be willing to bet quite a few people could, and doing so would put you on the path toward a potentially comfortable retirement.

Image source: Pixabay.

What's a smart way to boost your savings potential? If you're not already working with a monthly budget, it could be the perfect place to start. The reason a budget can be such a critical component to your retirement is that it helps you fully understand your cash flow. Most people have little trouble understanding their income, but question them about their expenses, and you're liable to get a shoulder shrug. Having a set monthly spending schedule should allow you to optimize your ability to save, putting you on the right track to meeting your retirement number. Formulating a budget is pretty easy these days thanks to online software taking care of the calculations, and it can often be done in about 30 minutes per month, or less.

Secondly, it's worth noting that there's no concrete path or perfect formula to reaching $1 million, $2 million, or any dollar figure for that matter. Everyone's path to retirement is going to be different. Some people are starting with $100,000 saved for retirement, whereas others have zero. Some are looking to save $20 per week while earning $20,000 per year, while others are finding ways to put money away with a $100,000 annual income. The point is, there are plenty of ways to manipulate these numbers in your favor by simply altering the amount of money you choose to save and making the conscious choice to begin saving as early as possible.

To add to this point, it's also in your best interest to maximize what you do invest by making smart decisions. This means adding to a 401(k), especially if your employer provides a match up to a certain dollar amount, opening a Traditional IRA or Roth IRA to take advantage of tax-deferred or tax-free growth, and having a withdrawal plan in place well before retirement so you don't wind up giving back an unnecessary portion of your nest egg in taxes.

Ultimately, only you are responsible for your retirement, so don't put off your chance at $1 million (or more) any longer.