Could a mere $300 monthly retirement plan contribution really lead to $1 million? You bet.
Do you want to retire with $1 million? It's a good goal to aim for. Though there's no guarantee that a $1 million nest egg will completely eliminate your financial stress later in life, it's certainly a comfortable -- and comforting -- savings balance to go into retirement with. And while that $1 million target may seem lofty, here's some good news: You can actually get there by saving just $300 a month.
Seem too good to be true? It's not. But there are some caveats. To retire a millionaire by contributing just $300 to your retirement savings plan, you'll need to follow these two rules.
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1. Start early
Many people get their first job in their early 20s, only they don't start funding a retirement plan until many years after. That's a mistake, as losing out on those early years of contributions and investment growth could spell the difference between retiring a millionaire and falling short.
Imagine you sock away $300 a month in an IRA or 401(k) starting at age 22, all the way until age 67, which is full retirement age for Social Security purposes for anyone born in 1960 or later. If you give yourself that 45-year savings window, you could wind up with just over $1 million to your name if your IRA or 401(k) investments generate an average annual 7% return (which we'll discuss in just a minute).
But if you wait even five years to start saving that $300 a month, you'll end up with roughly $719,000, instead. To be clear, that's still a respectable amount of savings to kick off retirement with. But let's face it -- it's not $1 million.
2. Invest aggressively
The money in your IRA or 401(k) shouldn't just sit there in cash. Rather, you'll need to invest it so it grows into a much larger sum. While bonds are a lot less volatile than stocks, they also tend to offer substantially lower returns, which is why it pays to get aggressive with your retirement plan investments. The stock market has historically delivered an average annual 9% return. If we assume that most but not all of your IRA or 401(k) investments get to sit in stocks during your savings window, then it's fair to apply a 7% average annual return like we did above.
But watch what happens when you play it too safe in your retirement plan. If you sock away $300 a month for 45 years but only invest half of your wealth in stocks, leaving the other half in bonds, you might average more like a 5% yearly return, instead. And in that case, you'd be looking at retiring with $575,000, not $1 million.
Again, $575,000 is nothing to scoff at. But it's also a far cry from $1 million, especially considering that you'll be contributing the same amount of money throughout your career, only to end up with $425,000 less.
Retiring a millionaire is easier than you think
Closing out your career with $1 million to your name doesn't have to mean parting with a third of your paycheck and living an uncomfortably frugal lifestyle throughout. All it takes to retire a millionaire is saving consistently from a young age and investing your money wisely.
By following the two above rules, you may be pleasantly surprised at how much wealth you wind up with by the time your senior years kick off.
FAQs
The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.
How much does Dave Ramsey say to save for retirement? ›
When it comes to saving for retirement, money expert Dave Ramsey knows exactly how much you should be setting aside. Ramsey's recommendation, which he shared on his website Ramsey Solutions, is to invest 15% of your gross income into your 401(k) and IRA every month.
How many people have $1,000,000 saved for retirement? ›
However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.
What is the golden rule of retirement savings? ›
If your employer does nothing, set aside at least 10% of each paycheck on your own. (If you are older and haven't started retirement saving, then 10% will be too low: start thinking at least 15%-20%.) Of course, there will be times when you're between jobs or you need your money for a pre-retirement-age emergency.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
How long will $400,000 last in retirement? ›
Safe Withdrawal Rate
Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.
How much is $100 a month from 25 to 65? ›
$1,176,000. You do NOT have to retire broke.
What happens if you save $100 dollars a month for 40 years? ›
Your Retirement Savings If You Save $100 a Month in a 401(k)
If you're age 25 and have 40 years to save until retirement, depositing $100 a month into a savings account earning the current average U.S. interest rate of 0.42% APY would get you to just $52,367 in retirement savings — not great.
What to do if you are 60 and have no retirement savings? ›
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
How many people have $3000000 in savings in the USA? ›
This effectively means the top 1% are those with more than $10 million (~25m) and the top 0.1% are those with roughly $1 billion. There are estimated to be a little over 8 million households in the US with a net worth of $3 million or more. I very much doubt that any of them have that amount in savings.
While having a net worth of about $2.2 million is seen as the benchmark for being rich in America, it's essential to remember that wealth is a subjective concept. Healthy financial habits and personal perspectives on money are crucial in defining and achieving wealth.
How much do most people retire with? ›
What is the average and median retirement savings? The average retirement savings for all families is $333,940 according to the 2022 Survey of Consumer Finances.
Can I retire with $300000 in savings? ›
Summary. $300,000 can last for roughly 26 years if your average monthly spend is around $1,600. Social Security benefits help bolster your retirement income and make retiring on $300k even more accessible. It's often recommended to have 10-12 times your current income in savings by the time you retire.
Does retirement savings double every 7 years? ›
Assuming long-term market returns stay more or less the same, the Rule of 72 tells us that you should be able to double your money every 7.2 years.
Can I retire with only $100 000 in savings? ›
“With a nest egg of $100,000, that would only cover two years of expenses without considering any additional income sources like Social Security,” Ross explained. “So, while it's not impossible, it would likely require a very frugal lifestyle and additional income streams to be comfortable.”
What is the 4 rule for retirees? ›
The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.
At what age is 401k withdrawal tax free? ›
Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.
What is a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
