How Much Do You Need to Save per Month to Retire With $5 Million?

An ambitious goal requires an equally ambitious savings plan.

If you want to have plenty of money throughout retirement, $5 million in savings will most likely do the trick. Based on the 4% rule, you'd be able to safely withdraw $200,000 per year. This is definitely a big goal that few people reach, but how much saving does it actually take? Let's look at the numbers to find out.

Here's how much you need to save per month to retire with $5 million

The amount you need to save for a nest egg of $5 million will depend on your age and the return you're getting. As far as returns go, 10% is a good number to go by. That's the average stock market return per year over the past 50 years.

We'll assume you get that return of 10% per year, and that you want to retire at 65 with $5 million. Here's how much you'd need to save depending on your age:

• If you start at 20 years old, you need to save $580 per month.
• If you start at 30 years old, you need to save $1,537 per month.
• If you start at 40 years old, you need to save $4,237 per month.
• If you start at 50 years old, you need to save $13,114 per month.

Time and compound interest are powerful things. If you start young, you have much more time to build your savings. Compound interest will also have a significant impact on your returns. These factors are why people who start earlier don't need to save nearly as much per month. It still takes a lot of saving, but beginning to invest while you're young is a huge help.

How to save $5 million by retirement

Getting to $5 million is no small feat. You're almost certainly going to need an above-average income and a high savings rate. However, you don't necessarily need to make CEO pay.

Let's say you're 30 years old and have worked your way up to a salary of $90,000 per year. After taxes, you take home about $6,000 per month. You'd need to invest a little over 25% of your income to be on track for $5 million.

It's still clearly a challenging goal, but it's far from impossible. If $5 million is your target number for retirement, here are some smart wealth-building strategies to use:

• Be aggressive about increasing your income. Seek out higher-paying job opportunities, ask your current employer how you can get promoted, or try starting a side business. It's much easier to save with a high income.
• Put all or most of your investment portfolio in stocks. It's more volatile, but you maximize growth this way. Mutual funds and index funds that invest in the S&P 500 are both good ways to do this.
• Contribute to a 401(k) plan. If your employer offers this type of retirement plan, it can help you save on taxes. Many employers will also match your contributions up to a certain amount.
• Open an individual retirement account (IRA). This type of retirement account also helps you save on taxes. Traditional IRAs let you deduct contributions from your income, and Roth IRAs offer tax-free withdrawals.

401(k)s and IRAs have annual contribution limits you may run into. To invest even more, you can open an individual brokerage account with an online stock broker. This type of account doesn't offer tax savings, but unlike 401(k)s and IRAs, it also doesn't have early withdrawal penalties for taking out money before you're 59 1/2.

Is $5 million a good goal?

At first, $5 million might seem like an unnecessary or unrealistic amount to save. While it's certainly a large amount, that doesn't necessarily mean it's a bad goal. It's also important to remember that a person's retirement savings target should depend in part on their age.

For younger adults, retirement needs are only going to get more expensive with time. According to Wealthcare Financial, Generation Z and millennials should save $3 million for retirement. Those who want to be even more secure may want to aim higher. On the other hand, people who are closer to retirement probably don't need to save so much.

Regardless of whether your goal is $5 million or another amount, an ambitious target is a good thing. It motivates you to save aggressively for retirement. You might later decide you don't need as much as you thought, and you could even possibly retire early because of how much you've saved. How much you save is up to you, but it's better to aim high than low.