Retirement is becoming more and more expensive, and heading into your senior years with at least $1 million in the bank isn't an unrealistic goal. In fact, the average American expects retirement to cost a whopping $1.9 million, according to a survey from Charles Schwab.
That said, actually saving $1 million is easier said than done, especially if you want to retire by age 50. It's not impossible, though, as long as you start early and save consistently.
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What does it take to retire a millionaire?
The key to retiring with at least $1 million is to start saving as early as possible. Compound interest helps your savings grow faster the more time they have to sit untouched in your retirement fund, so by getting a head start, you won't need to save as much each month to reach your goal.
Just how much you'll have to save each month depends on what age you begin saving. Assuming you're earning a 7% annual rate of return on your investments, here's how much you'd need to save each month to reach the $1 million mark by age 50:
| Age You Began Saving | Amount Saved Per Month | Total Savings at Age 50 |
|---|---|---|
| 20 | $900 | $1.02 million |
| 25 | $1,350 | $1.02 million |
| 30 | $2,100 | $1.03 million |
| 35 | $3,350 | $1.01 million |
| 40 | $6,100 | $1.01 million |
| 45 | $15,000 | $1.04 million |
Source: Author's calculations
If these numbers seem overwhelming, don't fret. Although the average American may not be able to afford to save thousands of dollars each month to retire a millionaire by age 50, that doesn't mean you can't still enjoy a comfortable retirement.
Setting realistic retirement goals
If you can't afford to sock away several thousand dollars per month for retirement, that's okay. But it is still important to start saving early, because whatever your savings goal, starting early will make it easier to build a robust retirement fund.
To figure out how much you should be saving, run your numbers through a retirement calculator. One million dollars may seem like a smart goal, but it won't be the right target for everyone. By using a calculator to estimate how much you'll need to retire comfortably based on your unique situation, you'll have a much more accurate idea of what you should be saving.
Once you have an idea of how much you should aim to save by retirement age, as well as what you'll need to save each month to reach that goal, think about whether those numbers are realistic based on your budget. If you're behind on your savings and you know you can't achieve your monthly savings goal, it's time to consider your other options.
Preparing for retirement on a budget
The first step is to see if you can tweak your budget to find more cash to put toward your retirement goals.
If you don't do so already, start tracking your spending to see where every dollar is going each month -- you might find you have more cash than you think. In fact, although nearly 60% of Americans say they're living paycheck to paycheck, the average U.S. adult spends nearly $500 per month on non-essential costs, a survey from Charles Schwab found. By cutting those unnecessary expenses, you can put more cash toward your retirement goals.
Sometimes, though, budget cuts alone aren't enough. In that case, you'll need to consider more drastic options. If you're serious about saving more money, you may decide to downsize to a smaller home or move to a more affordable neighborhood. These options could potentially save you hundreds of dollars per month, which can go a long way toward retirement.
You may also choose to delay retirement by a few years, giving yourself more time to save. Or you could consider picking up a side hustle and putting that income toward your retirement fund. Keep in mind that if you don't make sacrifices now to save more, you may need to make major lifestyle adjustments in retirement to live on less.
Retiring a millionaire is a lofty goal, and for some people, it may be well within reach if you start saving early enough. But even if that goal isn't realistic, it's still important to save as much as you can for retirement. Every little bit counts, and taking steps to save more now will pay off later.
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