A recent survey from Northwestern Mutual found that the average American has $88,400 in retirement savings — but Americans believe they will need about $1.46 million to have a comfortable retirement. Saving $1 million (or more) for retirement might seem daunting.
But before you panic: Based on your age, if you make the most of your job’s 401(k) plan and other retirement savings accounts, you might have plenty of time to save $1 million for retirement. By investing in stocks and other financial assets, you may grow your savings to meet your retirement goals — in addition to Social Security income.
Let’s look at the big picture of what it means to save $1 million for retirement — and how your retirement dreams might be well within reach.
Save $1 million for retirement with the magic of compound interest
Here’s the thing about saving $1 million for retirement: You don’t have to save every dollar yourself, and it doesn’t have to happen overnight. Saving for retirement is a long process where you tuck away some money from every paycheck, then let the stock market do the heavy lifting for you over several decades of investment growth.
Every dollar you save today to invest in stocks, bonds, and other assets that are appropriate for your goals will (hopefully) grow with the power of compound interest. As stock prices go up over time, as stocks pay dividends, as the bonds in your portfolio pay yield and go up in value, your retirement savings will grow, too.
How much can your retirement savings grow? There are no guarantees, but over the past 30 years, the S&P 500 has delivered an average of 10.7% per year. Patiently investing in stocks over time can help you save $1 million or more for retirement.
How to save $1 million for retirement — starting from $0
Northwestern Mutual’s survey found that the average American has $88,400 saved for retirement. But what if you don’t? If you’re just getting started in your career or you’ve been paying off debt or recovering from financial setbacks, you might have $0 saved for retirement. And that’s OK!
It’s not too late. If you still have a few decades left in your working career and you start saving and investing right now, you might be able to save $1 million for retirement.
Let’s look at a few possible examples of how much you’d have to save for retirement per month, and for how many years, to get to $1 million of retirement savings, based on your current age. This is assuming that:
- You retire at age 67
- Your investments earn an average annual return of 8% (which is less than the 10.7% average annual return the S&P 500 has provided over the past 30 years)
You’re investing in low-fee stock ETFs through your 401(k), traditional or Roth IRAs, or brokerage account (these are all easy, accessible investment accounts that most Americans can use to save for retirement)
| Age | Years left to save for retirement | How much to save per month | Retirement savings at age 67 |
|---|---|---|---|
| 25 | 42 | $274 | $1,000,353 |
| 30 | 37 | $411 | $1,001,543 |
| 35 | 32 | $621 | $1,000,159 |
| 40 | 27 | $955 | $1,001,040 |
| 45 | 22 | $1,503 | $1,000,218 |
| 50 | 17 | $2,470 | $1,000,357 |
Data source: Author’s calculations and Investor.gov
As you can see, the longer you wait to start saving for retirement, the more you have to save and invest per month. Don’t assume that you don’t have to worry about saving for retirement because you’re young — your early career years are some of the best opportunities to save money for the long term thanks to compound interest.
Is it ever “too late” to save for retirement?
Even if you’re in your 40s or 50s and haven’t saved much money for retirement, don’t assume it’s too late. Retirement planning is not a straight line. Most people have ups and downs in their careers and family lives; you might go through a layoff, big family changes like a divorce, or the expensive process of raising children. Your personal finances are likely to improve, like getting a big promotion, starting a business, or getting an inheritance or other financial windfall.
Some people might not be able to save much money for retirement in their early years but find that they can save a lot more for retirement in middle age. Especially if you’ve made good progress in your career, are making more money than you used to, and no longer have children living with you at home, middle age (and beyond) can still be a good time to save for retirement.
Bottom line
Saving $1 million for retirement might be easier than you think — but you need to start now. People who start saving for retirement in their 20s might only need to save a few hundred dollars per month to make it to $1 million by age 67. Use your IRA, 401(k), or brokerage account (or all three) to invest in diversified stock ETFs and let the stock market do the hard work for you.