Is Saving $1 Million for Retirement on an Average Salary Really Possible?

As of 2022, the median retirement savings balance among Americans aged 65 to 74 was $200,000, according to Federal Reserve data. And if you earn a typical salary, you might assume that $200,000 is a reasonable savings goal to aim for yourself.

But you may be surprised at how easy it is to retire with $1 million — even if you’re paid an average wage. To pull that off, though, you’ll need to employ a specific strategy of saving and investing.

What it takes to reach $1 million

Let’s get one thing out of the way. You don’t necessarily need $1 million to retire comfortably. Many people are able to live well on less. And if you earn an average salary, you may be used to living pretty modestly. But there’s also nothing wrong with aiming high — even if you don’t have a six-figure income.

In 2023, the median U.S. household income was $80,610, according to research by The Motley Fool Ascent. If your income is similar and you save 5% of it for retirement, you’re parting with about $4,000 each year, or about $335 per month. Meanwhile, the S&P 500’s average annual return over the past 50 years is 10%.

If you put $335 a month into a retirement plan over 35 years, and your stock investments generate a 10% yearly return, you’re looking at retiring with almost $1.1 million. Yes, really.

And if you’re wondering how that’s possible, it’s because as soon as your money starts making money in the stock market, your gains are reinvested. It’s a concept known as compounded returns. 

A simplified way to look at it is this. You might invest $1,000 one year so it grows to be worth $1,100 after 12 months. But then, the next year, you have an extra $100 to invest. 

Now, imagine you’re doing this over 35 years. Even though you’re only parting with 5% of your salary, you’re earning enough in stock market gains — and you’re reinvesting those gains — to end up with close to $1.1 million despite only contributing about $140,000 to your retirement plan yourself. Talk about a sweet deal. 

Get started as soon as possible

Not only is it possible to retire with $1 million on an average salary, but you can pull that feat off even if you don’t begin saving for your senior years the moment you start working. The above example uses a 35-year savings window. 

You could conceivably start saving at age 32 and still meet your goal by age 67, which is a reasonable age to retire. It’s actually full retirement age for Social Security purposes for anyone born in 1960 or later (meaning, the age you get your full benefit without a reduction).

But if you want to meet that goal, don’t delay. Click here for a list of the best individual retirement accounts (IRAs) and set up automatic contributions from your checking account so that money lands there every month without much effort. 

From there, it’s a matter of investing in stocks and being patient. And you should know that most IRAs let you invest in S&P 500 ETFs (exchange-traded funds), which allow you to build a diversified portfolio even if you know nothing about picking stocks. 

Of course, you may not end up with exactly $1 million by retirement even if you stick to this basic plan. The point, however, is that $1 million in savings is doable even if you earn an average income. So don’t assume that retiring with a ton of wealth isn’t in the cards for you.