I have lofty savings goals, but I also have a plan for pulling them off.
Saving $1 million or more for retirement isn’t something everyone is able to do. The average American aged 65 to 74 has managed to save about $609,000, according to the Federal Reserve. But the median savings balance for that age group is only $200,000. And a discrepancy that large between average and median tells us that $200,000 is more representative of older Americans’ savings balances on a whole.
But frankly, I’m not happy with either balance in the context of my retirement, because I’m hoping to save $1 million or more. And while I don’t expect that to come easy, I’m taking a few key steps to increase my chances of success. Here’s my strategy.
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1. I’m living below my means
I work hard for my money, pushing myself to put in 40-plus hours of work most weeks while juggling a hectic household. Part of me would like to spend more of my earnings on luxuries and conveniences — a nicer home, regular housekeeping (I have someone who comes in twice a month, but twice a week would be lovely), and a car that isn’t my clunky, aging minivan.
However, I know that the less money I spend, the more I can save. It’s that simple. And I’m willing to make some sacrifices now if it means being more comfortable later.
That said, I won’t go to extremes. My family dines out or orders in food a couple of times a week. And while we usually don’t take luxury vacations, we aim to travel once or twice a year. But because we keep larger expenses like housing and transportation as low as possible, it gives us the flexibility to enjoy life to a modest degree now while also being able to set money aside for the future.
2. I’m using tax-advantaged savings plans as much as possible
I have a portion of my retirement savings in a taxable brokerage account. And the reason is that I want to make sure I can access some of my money in the event of an earlier retirement than planned.
But before I put money into a regular brokerage account, I make a point to max out my solo 401(k). Doing so allows me to score a huge tax break on my contributions, which helps enable me to save at the level I do.
On top of my 401(k), my family is eligible for a health savings account (HSA). An HSA is an account you can tap at any time to cover qualified medical bills. However, I pay those out of pocket so that I can invest my HSA and reserve it for retirement. As is the case with my 401(k), my HSA contributions are tax-free.
3. I’m investing my money aggressively
I’m fully aware that putting money into the stock market carries risk. I also know that limiting myself to conservative investments is apt to stunt my portfolio’s growth. That’s not a good thing when you’re aiming for $1 million or more in retirement savings, which is why I’m willing to take the risk of owning stocks.
However, I’m still being cautious. My stock holdings are diversified so I don’t have too much money invested in any specific company or industry. And I continuously keep tabs on my investments by reviewing my holdings every quarter and making changes as needed.
I don’t necessarily need to live in a mansion during retirement or own my own yacht. Heck, those aren’t things I do now, so why would I have the expectation of them being my retirement reality?
Rather, my goal is to retire with enough money that I don’t have to worry about being able to afford everyday expenses on top of some modest travel and hobbies. And while I don’t know exactly how much savings that will require, I figure if I’m able to come in with $1 million or more, I’m setting myself up with a pretty solid cushion.