I Want a $2 Million Nest Egg. How Do I Get There?

The average person saving for retirement today has $88,400 socked away, according to Northwestern Mutual. But you may have much loftier goals. Perhaps you're aiming for a $2 million nest egg. And if you play your cards right, it's a savings target that may be more than attainable. Here's how to get there.

Step 1: Start saving from a young age

When growing wealth for retirement, time is your greatest resource. The more time you give your money to grow, the better you get to take advantage of compounded returns in your IRA or 401(k).

Aim to start saving as soon as you can. You may not be able to divert funds to a retirement account during your first year of employment, as you might first have to focus on building an emergency fund (something that should take precedence over retirement savings, since it could keep you out of debt in the near term). But once you're set with near-term savings, get into the habit of funding an IRA or 401(k) every month.

If you can put those contributions on autopilot and then raise them as your income rises, even better. A 401(k) will pretty much always make this possible since these accounts are funded via payroll deductions. If you're going the IRA route, find one that allows you to set up an automatic transfer so you stay on track.

Step 2: Invest your savings in stocks for strong gains

Some people worry about investing their savings in stocks because the market has a history of volatility. But it also has a history of strong performance. It pays to rely on stocks to grow your money, because if you play it too safe, you may not get the sort of returns that lead to $2 million.

Over the past 50 years, the stock market's average annual return has been 10%. But do note that those returns account for years of solid performance and years when the market utterly tanked.

Step 3: Don't retire too early

Many people aim to close out their careers in their mid-50s, late 50s, or early 60s. That's something you may be tempted to do if you don't particularly like your job. But extending your savings window into your mid-60s or beyond could make it easier to accumulate the balance you're after. So it pays to pursue a career that not only pays the bills, but gives you work you enjoy to some degree (or at least don't hate).

Remember, too, that even if you get to a $2 million nest egg by age 55, it may not buy you the same retirement as it would at age 65. When you retire in your mid-50s, you have to be more conservative with your withdrawals, leaving you to live a more pared-down lifestyle.

Putting it all together

So now that we have our game plan, let's say you begin saving for retirement regularly at age 25 -- once your emergency fund is complete and you're in a stronger place financially. Let's say you also manage to contribute $400 a month to a retirement plan through age 65, all the while enjoying an average annual 10% return on your money.

The balance you'll be looking at? $2.1 million. That also has you never increasing your monthly contributions beyond the $400 point, which you should be in a better position to do as your earnings increase.

All told, a $2 million nest egg may be more than attainable for you, even if you're not a six-figure earner. You just need to start early, invest wisely, and keep at it for long enough.