Here’s How to Save a Million Dollars Before You Retire

retire with 1 million

One day, I sat down to figure out how much money I’d made since my first job as a babysitter at age 12. Of course, I couldn’t find an exact amount. But by my estimate, I’ve made more than $1 million so far.

Just because I’ve earned more than $1 million, however, doesn’t mean I’ve been able to keep it all. Bills need to be paid. Kids need new clothes. And I like the idea of having a car to drive.

Saving up to retire with $1 million is a daunting task when you realize how much you actually spend every year.

The good news? You don’t need to set aside every single penny to be successful. If you decide to save $1 million for retirement, you can make it happen. How long it takes depends on when you start and how much you save.

The earlier you start, the less you need

Using an investment calculator, it’s easy to estimate how much you need to set aside in order reach your goals.

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Let’s say you set a retirement age of 65. If you start saving at age 35, you have 30 years to make it happen. With a 7% rate of return, you’d need to set aside a little more than $800 a month.

Now, say you start 10 years earlier at age 25. With 40 years to save up, you’d only need to contribute about $375 a month.

By starting just 10 years earlier, you can get away with setting aside less than half as much each month.

Consistency over time can allow you to retire with $1 million more efficiently. The longer you’re able to save up for retirement, the less money you need to contribute to reach your goal.

What about asset allocation

Getting to that $1 million mark is also about asset allocation and the kind of returns you earn on your investments.

The examples above use a fairly conservative estimate of 7 percent annualized return to figure out how long it would take to save $1 million for retirement. It’s always wise to be conservative in your estimates for retirement needs; better to save too much than get caught saving too little.

However, consider that the average return for the S&P 500 from 1928 to 2014 is about 10 percent and you can see how that changes the calculation. All of a sudden, you can set aside $500 a month for 30 years instead of coughing up $800 a month.

When you change your asset allocation to keep it mostly in stocks (instead of a less risky stock/bond mix), you have the potential to see higher returns. You can also increase your returns by making use of dividend stocks and funds. When you reinvest dividends, you build your portfolio faster and have the potential for even higher returns.

It can get tempting to try and boost your returns further by investing in assets that are considered riskier — think precious metals, commodities, businesses, and currencies.

The downside to adopting a riskier investment strategy and asset allocation is the greater potential for loss. You might see a bigger potential upside — and a faster path to $1 million — but you also stand a greater chance of losing enough to set you back several years in your quest.

Sticking with a relatively tame indexing strategy might not be sexy, but it comes with a greater chance that you will log gains along with the market and reach $1 million at a slow and steady pace.

How to save a million dollars

Saving for retirement isn’t just about plodding away at a job for 30 or 40 years. You don’t even have to take outsized risks to retire with $1 million. It’s possible to boost what you set aside each month with the help of a few time-tested strategies.

1. Take advantage of your employer match

The easiest way to save for retirement is to use your employer’s investment plan. If you can invest in a 401k through your job, do it. Take that money out of your paycheck before you even see it.

If your employer offers a matching contribution, max it out as often as possible. This way, you get free money to help build your nest egg.

2. Start a side gig

Start a side business and commit the profits to your efforts to save up $1 million. You can still contribute to your employer’s plan, but now you have a little more to put in an investment account for the future. It’ll help you reach a comfortable retirement a little bit sooner.

3. Trim your budget

Think about your priorities as you look for spending you can cut. How are you wasting money?

Track every dollar you spend for a month or two, then see where you can improve. Set a reasonable budget to recover some of your wasted income and redirect it toward your retirement goals.

4. Become a landlord

You might be surprised at how easy it can be to become a landlord. If you manage things properly, you can get enough from your tenants to cover your own living expenses. If that happens, you can use the money you save to invest for the future.

Supercharge your savings and you can reach $1 million in your nest egg much faster.

What are you willing to do?

In the end, how long it takes to save $1 million depends on what you’re willing to do. If you want to retire as a millionaire, you may need to cut back on your spending and look for ways to earn more. That way, you can put more into your investments to watch them grow.

If you aren’t in a rush, manage your cash flow and set aside a smaller amount each month for a longer period of time.

Figure out what matters most to you, make a plan, and stick to it. In time, you’ll reach your retirement goals — and you might even have money to spare.

Ready to get started? A good investment plan can go a long way when it’s adequately funded.

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