How To Make $1,000,000

save one million dollars retirement

Photo Credit: Huffington Post

Sorry, this isn’t going to be a get rich quick post, but I do want to show you how you can make $1,000,000 and have that nest egg for when you retire!

I’m a firm believer that individuals of most income levels can afford to save and invest to have over $1,000,000 by the time they retire.  After doing some math, which I will share with you below, I was pretty surprised about how easy it actually is.  I’ve run several different simulations, based on different market returns and savings amounts, and I’m showing you below.

Let’s break it down.

 

Math To Save and Make $1,000,000

The Goal: $1,000,000

Time Frame: I’m assuming you are 25, and will save until you are 65, so 40 years.

Rate of Return: I’m running two different scenarios – 5% and 8%.  Everyone always seems to quote 8% since that has been the historical norm, but if you’re planning for retirement, I’d rather be a bit conservative.

 

Scenario 1: 5% Annual Return

If you want to save $1,000,000 at an 5% annual return, you would need to save about $650 per month, or about $7,800 per year.

 

Scenario 2: 8% Annual Return

If you want to save $1,000,000 at an 8% annual return, you would need to save about $300 per month, or about $3,600 per year.

 

How To Get There

First, I want to highlight the huge disparity in result by just fluctuating the rate of return by 3%.  Over the time frame of 40 years, the rate of return can really make a huge difference.  As a result, you would want to recalculate a truer rate of return each year or so as you get closer to retirement and you have a true measure of how your portfolio performs.

However, even in Scenario #1 above, you can save that much!

Ways to Save:

If you need to save $7,800 per year, there are a few ways to do it.  First, make sure you are taking full advantage of your employer’s retirement benefits.  Many employers offer a 401k match – and according to The 401k Help Center, the most common contribution amount to a 401k is 6% of pay.  That means, if you make $50,000 per year, taking advantage of your employer’s match would deposit $3,000 into your 401k.  Since you have to contribute $1 for $1 to get the match (on average), that means you would have to also save $3,000.

Just focusing on your 401k, you’ve already saved $6,000 toward your goal of $7,800.  Now, you only have $1,800 left to save, which is only about $150 per month.  I think most individuals could find $150 if they really tried – by budgeting, working side hustles, or more.

Important Tax Reminder:

It’s important to think about taxes as you go for the $1,000,000.  You need to think about whether you are counting your million before or after taxes.  Taxes can take a large bite out of your income, but if you plan your saving correctly, you can avoid these.

 

Readers, what are your thoughts?  Do you think most people can save $1,000,000 if they tried?

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  • http://www.investin2012.org Rick @ Invest In 2012

    Interesting! But that’s a lot of money. Most people can’t save that much each year.

    • http://thecollegeinvestor.com Robert

      I bet you could save that if you really tried – want to share your budget with me someday and we can analyze it?

      • jim

        Robert,
        I don’t know if you were just challenging that responder or if you really are interested in someone submitting their budget to get your input. I’m looking at retiring in 10 years (spouse in 5 years). If you are interested in a rags to (semi, ok pathetic) “rich” retirement plan, let me know. You could really help us and we, actually, could really help your readers ’cause we’ve just about done that and been there – financially and otherwise. You game?

  • http://www.genyfinances.com Dave @ Gen Y Finances

    I think $1,000,000 is very attainable as long as you start early. Just by contributing the minimum necessary to get my employer match, I am putting about $700/month in my 401k.

    On the tax front, my part of my 401k contribution is Roth and my employers match is Traditional, so I have a mix of before and after tax contributions.

    • http://thecollegeinvestor.com Robert

      The Roth 401k is such a good deal except for the employer part not being tax free withdraws…

  • http://frugalzeitgeist.com Forest

    It’s always good to see the numbers listed on paper (well, screen). Thanks for sharing the post.

    I hope I retire with a nice wad so need to really get my sums in order.

    • http://thecollegeinvestor.com Robert

      I think we all want to retire with a nice chunk of change – it’s good to make the goals a little more relevant by putting them in what you need to do now versus in 20-30 years!

  • http://www.pinchthatpenny.net Bryan

    I also agree that $1,000,000 is possible for most investors by retirement time. Of course, whether that will be enough for a 20/30/40 year retirement remains to be seen.

    • http://thecollegeinvestor.com Robert

      Bryan – I do agree with you that $1,000,000 may not be enough in the future. Heck, it may not be enough now. If you want a risk-free return, you can maybe earn 0.50% on your money. That would only be $5,000 per year! If you go with something like muni bonds, you maybe get 4%, or $40,000, but even that may not be enough. You’d have to get more aggressive to earn more income, but that comes with more risk, and you may not want that in retirement.

  • http://femmefrugality.blogspot.com femmefrugality

    I agree with Rick. It is a lot to save. However, if you ARE 25 right now, you have to be thinking that safety nets such as social security won’t be there for you. When you imagine working till you’re on your deathbed, the savings gets a lot easier. Or the motivation to get a better job so that you can do the saving.

  • http://femmefrugality.blogspot.com femmefrugality

    *Also, even though you’re saving that much, contributions to 401ks are not taxable. So you’re not losing as much money out of your paycheck as you’re saving. Someone correct me if I’m wrong.

    • http://thecollegeinvestor.com Robert

      No, you’re correct in that – that is why leveraging your 401k is such a great tool.

  • http://www.investitwisely.com Invest It Wisely

    I think that most people can get there with diligent savings. $7,800 would be between 10% – 20% overall income for most people; not an unreasonable sum to save. If you can manage to reach 50% of net income in savings, you are well on the way. :)

    • http://thecollegeinvestor.com Robert

      Thanks for pointing that out. Especially with an employer match, you should be there!

  • http://barbarafriedbergpersonalfinance.com Barb Friedberg

    Robert, I’m a firm believer in the slow and steady approach to wealth. Starting young is the most important part of compounding your returns.

    • http://thecollegeinvestor.com Robert

      Very true – the more years you have to compound, the better off you will be!

  • http://streetsmartfinance.org Shilpan

    Albert Einstein said compound interest is the greatest mathematical discovery of all time. His rule of 72 never cease to amaze me because money compounds so quickly. Anyone with discipline and planning can accumulate cool million before 65.

  • http://everythingfinanceblog.com Tushar@EverythingFinance

    This post is a good reminder for all to start saving early and sock away as much as you can. Great post.

  • http://poorstudent.ca/ Poor Student

    I am 20 right now and I don’t make $7,800 in a year, so that much savings seems beyond me, but I still save what I think is quite a lot and that by starting five years before your example I will be even better off once I am able to save as much as the examples. But then again I don’t want to be saving until 65 and in Canada it is rarer to find employer matches for RRSPs (our 401k equivalent), so it still will be tough.

    • tehpurplepills

      you should probably find a job, to make over 8k a year…. even at minimum in the US ($7.25), working fulltime ( 40 hr/week) , youll get 15k or so a year. making 7k a year, is VERY Very much below the poverty line here…. so im just wondering what is the reasoning for not making 7k …..uk, its interesting

  • http://www.financialsamurai.com Financial Samurai

    Rob, are you there yet? If not, how far away? It is a great feeling, just like paying off student debt!

    • http://thecollegeinvestor.com Robert

      Not yet, but I have a goal to be there by 30, and I think I can do it. 3 more years, barring any major recession or stock market debacle!

      • http://www.financialsamurai.com Financial Samurai

        Didn’t realize you were only 27! I hope you get there!

  • Yong

    I say you get the 401k employer contribution part done, then max out your annual roth ira contribution, and finally contribute to rest of your 401k if you’ve got the extra bucks.