In short: Start as early as you can and save as much as you can. If this isn't realistic, there are other ways to save $1 million.
Who doesn't want to be a millionaire in retirement? But is that number even reachable? It may be, with some careful planning, time, and discipline. It all depends on your age, when you plan to retire, what types of accounts you use, your investment costs, and your risk tolerance.
Let’s say you start saving as soon as you can—your first job—and think you stick to saving that same amount (and maybe increasing it) every year. You can use the US Securities and Exchange Commission calculator to play around with assumptions in length of time and potential rates of return in order to get an idea of how much you’d need to save to put away $1 million for retirement.
The figure is a good starting point to help you adapt for when markets earn less or you’re able to save more.
There are several ways you can save to help reach that retirement goal of $1 million. Every retirement account has some sort of a tax advantage. 401(k)s and IRAs help you reduce your taxable income (you pay the tax when you make withdrawals generally in retirement). Contributions to Roth IRAs and Roth 401(k)s are made with after-tax dollars, so withdrawals in retirement are tax free for accounts opened for a minimum of five years and after age 59½.
If you’re not sure where to start, check if your employer provides a retirement savings plan. You’ll typically be able to set up automatic payroll deductions. If your company offers a matching contribution and you’ve fully vested, that’s like free money, so try to save enough to get the full match. (One recommendation is to work up to saving 15% of your pre-tax income, including the match.)
If you've maxed out contributions to your company plan and still want to save more, you can put an additional total of $7,000 (or $8,000 if you are over 50) for in a traditional or Roth IRA. But there are income limitations to saving in a Roth IRA.
It’s also important to remember that, while hitting that seven-figure $1 million mark might be a big milestone, inflation plays a factor, too. The same dollar you save today probably won’t buy as much by the time you’re set to retire. (To see how inflation affects the buying power of dollars you save today, use the U.S. BLS inflation calculator.) Adjusting your savings rate through the years can help.
Of course, saving $1 million may be out of reach for many, but you don’t have to save that amount to have a fulfilling, successful retirement. The lessons are really: start early. Save extra, such as bonuses, tax refunds, or inheritances, when you can. But save now so your money can start growing to help you reach whatever your personal retirement savings goal may be.
Are you eligible to save in a Roth IRA? If so, use this tool to determine whether traditional pre-tax or Roth post-tax elective deferrals (if offered by your retirement plan) are right for you. (Use the link, or under your 401(k) account, click on “Personalized planning" then "Education hub.")
A version of this article originally appeared on HerMoney.
