In Your 30s and Want to Retire With $2 Million? Here’s How

I don’t know about you, but the dramatic price increases and economic uncertainty of recent years have given me major retirement anxiety. Just when I think I might be able to reach my retirement targets, I find I may need significantly more. 

If you’re aiming to retire with $2 million in your retirement and brokerage accounts, good for you. It’s an ambitious figure. But if you’re in your 30s, you may have 30 or even 35 years until you stop working. You can use that time to your advantage — though, depending on how much you earn, be prepared to sock away a sizable chunk of your paycheck.

Planning for the unknown

One of the things that makes retirement planning difficult are the many unknowns to juggle. We can take a good guess at quite a few of them — inflation, housing, and healthcare costs.

You can also use your current medical situation and family history to get an idea of how long you might live. But it’s still a lot of guesswork. 

Another big unknown is how your investments might perform. Many financial planners use an annual rate of return of 8%. That’s reasonable given the S&P 500, which tracks the performance of the biggest 500 public companies in the U.S., has produced historical average annual returns of around 10%. 

That said, you won’t get a steady 8% every year. For starters, the stock market will have good and bad years. On top of that, your risk tolerance will change as you get older. 

It’s one thing for your portfolio to drop 25% in value when you’re 33 — you still have time to recover. It’s quite another when you’re a few years from retirement.

Use tax-advantaged accounts

Maximizing your tax-advantaged contributions is essential if you want to retire with $2 million. How you save is as important as how much you save. Here are some of your options:

• 401(k)s: Not only are there tax advantages, but some employers will match a percentage of your contributions to these workplace retirement plans. 
• Individual retirement accounts (IRAs): Traditional IRAs reduce your tax bill today, whereas Roth IRAs reduce your tax bill in retirement. Look into the different types to decide which ones make the most sense.
• Health savings accounts (HSAs): If you have a qualifying high deductible health plan, HSAs can have a triple tax benefit. You contribute pre-tax dollars, your investments grow tax-free, and withdrawals for medical expenses are tax-free too.

If you’re looking to make serious retirement contributions, make sure you understand the contribution limits for each account so you can maximize any tax benefits.

Here’s how much you’ll need to save to retire with $2 million

With so many variables, it’s worth using a retirement calculator to map out different scenarios and get an idea of your specific situation. For the sake of simplicity, we used an average annual return of 8% to estimate how much you’d need to save to reach $2 million.

Data source: Author’s calculations.

For context, the Bureau of Labor Statistics says the median earnings for 25- to 34-year-olds is $1,103 a week. That comes to $4,780 per month and $57,356 per year. The median for 35- to 44-year-olds is slightly higher — $1,247 a week. That’s $5,404 per month and $64,844 per year. 

If you’re in your early 30s, a monthly contribution of $970 may feel tight but achievable. On the other hand, if you’re in your late 30s and earning around $5,400 a month, the idea of losing over 40% of your paycheck will likely feel impossible. That extra 10 years of compound interest makes a huge difference. 

If you’re set on saving $2 million and you don’t think you can put enough aside each month, one option might be to work for a few more years. Another route could be to take on more risk and shoot for returns of maybe 10%. Just avoid any too-good-to-be-true investments that could lose you all your money.

Do you need to retire with $2 million?

It’s admirable to aim for a hefty retirement fund. On the flip side, it would be beyond frustrating to scrimp to save significant amounts of money for the next 30 years, only to find you’ve got too much. Don’t aim for an arbitrary figure — whether that’s $2 million, $1.5 million, or $1 million. 

Before you start socking away large chunks of your paycheck, calculate how much you might need. You can use your current costs as a guide. Factor in other income streams such as Social Security. 

The lifestyle you might want when you retire matters, as well. Think about when you might want to stop working and how many years you might need to live off your nest egg. 

It can be a lot to get your head around. Ultimately, the earlier you start to save for retirement, the easier the process will be. If you’re in your 30s, you still have a good number of years ahead of you. The important thing is to get started — even if you aren’t able to save $2 million.