Is your goal to retire with $1 million? That’s a goal for many, and not an unreasonable goal to have.
After all, $1 million is likely to generate about $40,000 a year as a safe withdrawal rate. Add to that the typical Social Security payout of about $19,000 and you have an annual income that’s livable in much of the United States — assuming you own your home or have manageable rent.
Let’s say that’s your goal. Is it possible to even achieve?
Here are a few practical ways you can make $1 million by age 65 — just in time for retirement.
Start saving early
If you are determined and have a realistic financial plan, then nothing is impossible.
Still, if you want to save a million-dollar nest egg, it will help to start as early as possible and as young as possible.
If you started saving $400 to $500 monthly, or about $5,000 to $6,000 annually, in your 20s at a 7% compound interest rate for 40 years, then you could feasibly save $1 million by retirement.
You would never withdraw the money you save and make deposits every month to make this possible.
Start saving as much as possible now
Let’s say that you are in your late 40s or even 50 and want to become a millionaire by retirement age.
This isn’t an impossible task. It isn’t too late to begin saving $1 million for retirement before you reach age 65.
But it won’t be easy at all and will require as much financial sacrifice as you are willing to endure.
If you are in your late 40s or 50 today, then you would need to save $36,000 annually at a 7 percent return rate with the benefit of compound interest.
If you can’t manage to do that every year, then there are other things you can to support this endeavor.
Get a 401(k)
If your job offers a retirement plan like a 401(k), take advantage of it as soon as possible. You can save $19,500 annually, and tax-deferred, in a 401(k) plan offered by your employer.
Your employer likely matches a portion of your contribution. If you can do this annually for 15, then you can add significantly to the money you are currently saving for your $1 million retirement goal.
You will pay taxes on withdrawal, later in retirement. But by then your tax rate is likely to be lower and you will enjoy the intervening years of growth tax-free.
Do the catch-up contribution
After you turn 50, you become eligible to contribute an extra $6,500 to your annual 401(k) plan. So, instead of saving up to $19,500 tax-free in your annual 401(k) contribution fund, you can save up to $26,000.
If your employer matches your contributions dollar-for-dollar, or close to it, then you could be on your way to a million-dollar retirement after 15 years.
Many who have 401(k) plans don’t know about the catch-up contribution, so make sure to ask your employer for details.