As lavish as it sounds to retire a millionaire, the truth is, many Americans require at least a million-dollar nest egg to remain independent throughout their retirement years. If you are making over $50,000 annually pre-retirement, and you want to continue living life by the same means, many experts estimate that $1,000,000 dollars is the minimum amount that will last you the duration of your retirement. To be sure you retire a millionaire, First Bank offers retirement planning tips which include special methods that will jumpstart your retirement nest egg.
How Much Will You Need to Save Each Month?
One out of six retiree’s in America is a millionaire, but they didn’t become that overnight. They most likely used a process called compound interest to their advantage (also known as interest on interest) as well as they most likely started saving early. It’s best to use a retirement savings calculator to estimate how much you will need to save each month to reach your goal. As you’d expect, the earlier you start saving for retirement, the more you will have saved.
Using this retirement savings calculator, we assumed the retirement age to be 65, an annual interest rate of 8%, annual inflation rate to be 2%, and started with $0 prior savings. These factors of course may vary for your individual situation.
Start saving for retirement at ages 45-50
One concept of saving that is crucial to understand is it’s never too late to save for your goal. Of course, the earlier you start the easier and smoother the process will be. However, starting your saving journey at age 50 does not mean it’s impossible to be a millionaire at age 65. It just means it’s going to be difficult and restrictive, but if this is your goal then it’s crucial that you stick with it.
How restrictive will it be? We’re talking about saving $3,000 each month towards your retirement restrictive. For many, this might not be realistic, however, it may make you feel better to know you’ll only need to wait 15 years to see this pool of saved funds become a cool million, which can keep you encouraged during this saving spree.
If you boost this timeline to starting at age 45, this will loosen up your savings rules, but it still will be a tight budget. To have a million dollars by age 65 when you start at 45, you must save $1,700 a month. Keep in mind however that during this time, many people are paying for a child’s college education or have common big-ticket spending needs like buying a new car or paying off a mortgage. So, saving this amount per month can make your other savings goals more difficult.
Start saving for retirement at age 35
At age 35, you would need to save $700 a month to reach $1,000,000 by age 65. Starting to save at age 35 will provide you with more flexibility than age 50, but still can be difficult considering the many common expenses during this stage of life. For example, suppose you’re raising kids, getting married, or planning on furthering your education. Saving a large percentage each month towards your retirement will make your other life expenses more difficult, but it’s not impossible.
Start saving for retirement at ages 20-25
The beauty of starting early is it gives you flexibility to spend your money as you wish and still have a million dollars of retirement savings waiting for you at age 65. If you start saving at 25 years old and save $300 a month, you can retire with your $1 million dollar goal and still have the freedom to enjoy yourself leading up to it. And, if you are lucky enough to be able to put aside retirement savings starting at age 20, you can contribute just $190 a month and will be able to reach your million-dollar target by your retirement age of 65. For many just starting out with lower salaries and many desires, this can be difficult to be disciplined to achieve. But, being responsible early on in life will create far less financial stress for you as you get older.
Compounding money over time based on your starting point
To explain further the importance of saving young, we will provide you with how age affects your compound interest. By using a compound interest chart from NerdWallet, this example assumes that you are investing $250 a month since your starting age, using an 8% annual investment return, and would receive the following in compound interest based on your starting age:
- At age 45: Based on how money compounds overtime, you would accumulate $148,236 by the time you’re 65 years old.
- At age 35: By simply saving 10 years earlier, your money will compound over $200,000 more, with an accumulation of $375,073 by age 65.
- At age 25: It's no shock that if you start saving as young as 25, you will earn the most in compound interest. Using this same $250 monthly retirement savings, you will accumulate an impressive $878,570 by your target age 65 retirement.
Millionaire Retirement Savings Tips
Knowing how much you should be saving for retirement is one thing. But retirement saving tips, so you have a cushion of funds to fall back on during these times, and you may still be able to become a millionaire by the time you are 65.
1. Live below your means
This may be a hard concept to grasp, especially if you want to live the “American dream”, but in order to save efficiently, cutting your spending can only help. If saving $500 a month is putting you in debt, you’re spending too much. Challenge yourself to go to the coffee shop once a week instead of twice (or even better – make coffee at home!), create a weekly budget for yourself, and avoid racking up credit card debt. Many little changes in your life can add up and make saving that much easier.
2. Grow your nest
There are many ways you can increase your income past your regular paycheck. If you’re innovative, you can create your own business. If you’re interested in chance, you can start investing in the stock market. Consider what having a million dollars in your nest egg means for your standard of living. The savings experts at First Bank can work with you to help you make a spending and savings plan that makes sense for your life and your dreams.
For additional help making sure you reach your million-dollar goal in retirement, you can have your First Bank assist you with automatic transfers. This will ensure that money from your paycheck will automatically go towards your savings or retirement accounts, before you even remembered that portion of your paycheck existed.
3. Max out your contributions
The best way to boost your retirement savings is by maxing out your contributions within your retirement account. If you’re using a tax-deferred retirement savings plan, you can also open a taxable account. Don’t forget that many employers match your contributions in your retirement accounts up to a certain percentage. Look into if your employer does this, and make sure you are at least contributing enough money to benefit from this free retirement money.
Becoming a millionaire can seem like a dream rather than a reality. However, if you do the math, it’s extremely attainable for many. By following our saving techniques, you too can fall in the 16% of Americans who retire a millionaire.
To make your million dollar retirement savings dreams a reality, contact us.