Saving $1 million or more for retirement may seem like an intimidating goal, but the process doesn't have to feel overwhelming.
While there's no one-size-fits all method of getting started, one of the worst things you can do is nothing, says Anne Lester, a retirement expert and author of "Your Best Financial Life: Save Smart Now for the Future You Want," which will be released in March.
"Give up this notion that there's a perfect answer," she tells CNBC Make It. "There's pretty good to terrible. Pretty good is saving 15% of your money for retirement while terrible is not saving at all."
But don't panic if saving 15% of your annual income is a bit out of reach right now. It's OK to start small.
In fact, you could start by setting aside $20 a day, five days a week.
Say you begin doing this at age 25. By puttingwhat amounts to $100 a week into a retirement investment account that generates a 7% annual rate of return, you'd have about $1,057,681 saved up by the time you reach age 65, according to CNBC's calculations.
In this example, you're setting aside $400 a month. But thinking about it as $20 a day can feel a lot less daunting when you're looking for money to divert toward your retirement savings.
"Whenever you have a big goal, you don't do it by starting and finishing, right?" Lester says. "You break it up into small, digestible pieces."
With that in mind, CNBC calculated how a $100 weekly contribution to a retirement investment account could grow exponentially over time if you started at ages 25, 30 and 35. These calculations assume the account generates a 7% annual rate of return and don't account for unpredictable factors such as market volatility or periods of unemployment.
The results: If you started saving $100 a week at age 25, you'd have over $1 million by age 65. If you start at age 30, your retirement savings would have grown to around $726,000 by 65. And if you began contributing $100 a week when you turned 35, you'd have close to $500,000 by retirement.
As the chart above demonstrates, when you start early, you give your contributions a longer amount of time to grow through the power of compound interest. Using this example, waiting just five years to begin saving at age 30 instead of 25 results in a difference of more than $330,000.
Saving for retirement doesn't mean depriving yourself
Finding a small amount of money in your budget to put toward your retirement goals doesn't necessarily mean giving up little luxuries like lattes or dining out with your friends.
"I'm not going to 'latte shame' anyone. If it's a big, incredibly powerful part of your life then go buy the latte, just budget for it," Lester says.
It's important to take a look at your finances and get a clear idea of how you're spending your money, she says. That way, you can accurately figure out if you're spending money on things that may not be important to you. You may find that you're paying for a subscription you're not actually using and be able to save that money for retirement instead.
And the sooner you start, the better. When it comes to saving for retirement, "time is the single most important part of the investing equation," Lester says.
"The earlier you can start, even if it's small, the less you will actually have to save to hit that same goal in your 60s," she says. "It may be a sacrifice now, but it's saving you from a much bigger sacrifice later."
However, it's not the worst thing in the world if you can't afford to save for retirement until you're in your 30s or later, Lester says.
If that's the case, it may mean you'll need to make larger contributions in order to meet your retirement goals since your money will have less time to compound. But be aware of the latest retirement contribution limits.
Ultimately, no matter what age you are, getting started is crucial, Lester says.
"It's about taking small steps when you set this huge goal," she says. "It's a goal to get to, but you don't have to get there tomorrow."
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CHECK OUT: Want to retire at 65 with $2 million? Here’s how much to save each month
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FAQs
Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.
Is saving $20 a day good? ›
Little changes can make a BIG difference.
What if you could save $10 every day—or save 20 dollars a day—without compromising your lifestyle? Saving just 10 dollars a day would mean $3,650 more each year to invest in your future. Saving 20 dollars a day adds up to about $600 a month or $7,300 each year!
What is the $1000 a month rule for retirement? ›
According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.
How the 25x rule can help you save for retirement? ›
The 25x Rule
Be sure to include major spending that doesn't occur monthly, such as annual or biannual renewals. Next, take that yearly spending number and multiply it by 25. This will give you an idea of what that money will look like when stretched out over 25 years of retirement.
How many people actually have $1 million saved for retirement? ›
The Reality of Million-Dollar Retirements
According to estimates based on the Federal Reserve Survey of Consumer Finances, only 3.2% of retirees have over $1 million in their retirement accounts. This percentage drops even further when considering those with $5 million or more, accounting for a mere 0.1% of retirees.
Can I retire at 62 with $1 million dollars? ›
It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.
How much is $20 dollars a day for a year? ›
$20 daily is how much per year? If you make $20 per day, your Yearly salary would be $5,200.
What is the 20 dollar rule? ›
The rule of $20 a day — Every time you don't spend $20, you're one day closer to financial freedom. Remember the rule of $20 a day. Every time you spend $20 on something, it's going to take you one extra day of working to gain the true financial freedom that you're looking for.
How much to save to have $1 million by retirement? ›
You'd need to save $1,7000 a month to retire with $1 million. Keep in mind that you may also need to balance this savings goal with college tuition payments and other major expenses, like buying a new car or paying off a mortgage.
Can you live on $3,000 a month in retirement? ›
You can retire comfortably on $3,000 a month in retirement income by choosing to retire in a place with a cost of living that matches your financial resources. Housing cost is the key factor since it's both the largest component of retiree budgets and the household cost that varies most according to geography.
Living on $1500 per month in retirement may seem challenging, but with careful planning and smart strategies, it is achievable.
Is $100 dollars a month good for retirement? ›
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 is the golden rule of retirement savings? ›
Rule of thumb: "Save 10% to 15% of your income for retirement."
What is the 3 rule in retirement? ›
In some cases, it can decline for months or even years. As a result, some retirees like to use a 3 percent rule instead to reduce their risk further. A 3 percent withdrawal rate works better with larger portfolios. For instance, using the above numbers, a 3 percent rule would mean withdrawing just $22,500 per year.
What is the 33x rule? ›
Lowering your SWR increases the size of the nest egg you need. For example, if you plan on 3% SWR, your nest egg will need to be 33x your annual expenses to retire.
How long will $1 million last in retirement? ›
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years.
What percentage of retirees have $1.5 million dollars? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings.
Can I retire at 65 with 1 million in 401k? ›
Yes, it is possible to retire with $1 million. Retiring at the age of 65 with $1 million can seem like a lot of money to a lot of retirees. But the truth is, that amount depends entirely on your household, your finances and your needs.
How much money do you need to retire comfortably at age 65? ›
By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income. This amount is based on a safe withdrawal rate (SWR) of about 4% of your retirement accounts each year.
