How To Save A Million Dollars At Any Age

The February issue of Kiplinger’s has advice for how to save a million dollars at any age from 25-55. The longer you’ve got the easier it sounds, of course…. and the more inflation will take a toll on your million. Even so, interesting stuff.

How To Save A Million at 25:
To reach one million by age 65 you need to save $286 per month.

How To Save A Million at 35:
To reach one million by age 65 you need to save $671 per month.

How To Save A Million at 45:
To reach one million by age 65 you need to save $1,698 per month.

How To Save A Million at 55:

To reach one million by age 65 you need to save $5,466 per month

(Photo:Tracy O)

Comments

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  1. Blueskylaw says:

    How much do I need to save if I don’t want to eat Beef-a-roni for every meal after I retire?

  2. sleze69 says:

    @Blueskylaw: based on how inflation is going, if I were to save $1 million over the next 30 years, it may just be a Beef-a-roni meal.

  3. Toof_75_75 says:

    @Blueskylaw:

    Who knows, but all you need is 500K if you want to eat Top Ramen for every meal after you retire.

  4. timsgm1418 says:

    you may have to swtich to Ramen noodles instead of beefaroni..they’re much cheaper@Blueskylaw:

  5. Bay State Darren says:

    25-55 is 30 years. That’s “any” age? It’s less than half the average lifespan! I’m 23 right now, so the author considers me two years than any age.

  6. bonzombiekitty says:

    I’m well on my way, I’m 25 and have been putting over $800/month into my 401k for a year – only half of that is actually from my salary (yay company matching).

  7. jamesdenver says:

    That’s considering I’m actually going to work til 65. I hope, no PLAN on retiring much earlier.

  8. sir_eccles says:

    At my age, I would love to have $671 a month left over.

  9. ecwis says:

    @sleze69: Yeah it’s really misleading since they don’t consider the importance of inflation.

    For example, 1 million dollars in 1967 would be the equivalent of 6.3 million dollars today. [www.westegg.com]

    So it would be safe to say that 1 million dollars would be worth about 1/6 of what it is today if you wait 40 years.

  10. joemono says:

    @Bay State Darren: Yeah, the “any age” in the headline must work the same way that “unlimited” data plans work. They’re not really unlimited, and this advice really isn’t for anyone of “any age.”

  11. K-Bo says:

    Yeah, I’m 25, but I’m not getting excited about the fact that I’m putting away enough money to have over 2 million by the time I retire, because with inflation, and the ever lengthening average lifespan, 2mill might not be enough to keep me in ramen noodles. And to those of you like some of my friends, who don’t put away a penny more than the absolute min you think you will need, just remember you will have way more free time once you retire, do you want to spend it sitting around the house being bored because you only have enough money for food and bills, or do you want to get out and enjoy life? Very few people regret putting away too much. Almost everyone regrets not enough.

  12. Bladefist says:

    286$ per month? At what interest rate? There is a significant lack of details.

    0% interest its no where near enough. So putting it under your mattress is not what she means.

  13. joemono says:

    Or, “Come on by, we’re open at any* hour!”

    * between 10am and 10pm

  14. Roadkill says:

    “To reach one million by age 65 you need to save $5,466 per month.”

    Oh yeah, easy. I’ll get right on that once I start earning $5,466 per month.

  15. jamesdenver says:

    This also doesn’t give any specifics about what kind of life the retiree intends to have – or is assuming the stereotypical “play gold in Florida” life.

    I’d prefer to be a retiree that works part time in charity or volunteer work, and can extend my money by traveling and living part of the year somewhere in the world where the dollar is strong – or at least doing something to maintain a small passive income. (Wal-Mart greet doesn’t count)

    I just can’t ever picture myself doing nothing.

  16. KJones says:

    Are they counting home equity as part of your wealth? Just because it’s not cash in the bank doesn’t mean it’s not part of your wealth.

    If you own a home outright, it means you’re not paying rent or mortgage, so that reduces how much you need to retire on.

    And with reverse mortgages, it could mean extra income on something you own.

  17. K-Bo says:

    @bladefist: The assumption appears to be made that at 25 you would be investing in stocks, and moving slowly towards less risky investments as you age.

  18. SudsMN says:

    @bladefist: by my math, they’re assuming an 8% rate of return

  19. Myron says:

    The article says almost nothing about its assumptions. In the case of saving 286 a month from age 25 to 65 that works out to an 8% rate of return. A reasonable assumption for 100% equity. However, back in reality there are some complications:

    - Are they suggesting you save the same amount every month for 40 years? That seems silly. Why not save more over time as your earnings grow?
    - Inflation means a million dollars in 40 years will not be as impressive as a million dollars today. If inflation is 3%, then 1,000,000 in 40 years will have the buying power of about 412,000 today.
    - What about taxes? You can save tax deferred in a retirement account but you will pay tax on the withdrawals (or vice versa with a Roth).
    - Your investment mix should change over time. 100% equity makes sense when you are 25, but not as much sense when you are 55. This will lead to more conservative, lower return investments.

  20. bonzombiekitty says:

    @SudsMN: Yeah, they had a guy from Fidelity come here the other day to talk about why we should use our 401k and where our investments should be. He said that when it comes to stocks, over any given 10+ year period, the average rate of return is something like 8-9%.

  21. why is the target 1 million (or 2 for that matter)? you don’t need to have stacks of cash lying around.

    i would think that at retirement age (house paid off, no lingering debts, etc), all you’d need is steady monthly income. for example, an annuity that kicks you $5k/mo. (withdraw 7%/yr of 500k; earns ~8% interest). add in social security & your 401k plan.

  22. missbheave (is not convinced) says:

    @Myron: Your post was way more informative than the article. Seriously, how lazy does Kiplingers have to be to publish something this devoid of assumptions and possible complications?

  23. K-Bo says:

    @pepe the king prawn: do you realize how little 1 million is likely to buy when I retire? I’m 25, that leaves a whole lot of time for inflation to kick in. I didn’t do the math, but myron said after inflation 1 million would be the equivalent of 412,000 today. Most people in my family live past 90. Assuming I retire at 65, that leaves me 25 years at 16,480 a year. Hardly enough money now for me, and I’m healthy. Between inflation and health care costs, I expect to need way more than $1 million. And if I’m wrong, and $1 million is more than enough, good for me, I have gobs of extra money to use for travel.

  24. K-Bo says:

    @pepe the king prawn: Oh yeah, you say add in social security and your 401k. The money we are talking about needing to put away a month includes your 401k, it is not in addition to. They aren’t saying max out your 401k, then save this much more somewhere else. I’m not counting on social security either. If I get any when I get there, great, but if not, I’m gonna have enough to take care of myself.

  25. @K-Bo: huh? you won’t spend it all (i.e. 412000/25=16480). leave it in an interest bearing account.. 412000 will make 33k the first year you retire (at 8%). if you took out 16k out a year, you’d never run out of money.

  26. Brad2723 says:

    Don’t worry. The government will take care of you.

  27. K-Bo says:

    @pepe the king prawn: You will not continue to make 8% forever on it, you do now when it is in stocks, but to leave it in stocks when you are close to needing it would be very dangerous. By the time you retire, it might not be making even 1/2 of that 8%. Right now interest bearing accounts aren’t even keeping up with inflation. Every day your money is in one, it has less spending power, even if you have a few dollars more in interest.

  28. Myron says:

    For those wondering how much they need in retirement, Fidelity has a basic but fairly good online calculator for retirement savings. It is very easy to use:
    [personal.fidelity.com]

    Often your financial need in retirement is expressed as a percent of your salary; say 75 or 85 percent. This is an attempt to align your standard of living in retirment with your standard of living while working. The percent income replacement is typically less than 100% because you will presumably have much lower taxes (no more social security tax for one). However, what often happens is that early in retirement, when you still have your health, you spend as much or more than your previous income, as you now have the time and ability to travel and indulge your hobbies. Later in retirement, you may spend much less as you no longer have the health to travel etc. Of course medical cost is the big unknown and can be devastating to your savings. Also, the goal is to not run out of money before you die, but you don’t know exactly when you will die so you don’t know how long the money has to last. Retirees need to be conservative with those dollars.

    To those trying to figure how much income a million dollars can generate in retirement, here are a few ideas. First, there is a rule of thumb that you could withdrawal 4 percent of your savings a year and not deplete your saving before you die. Two, you could put your million in an immediate annuity and have guaranteed income for life. I suggest you look at Vanguard’s site for examples of how the numbers work (these are low fee annuities from AIG offered by Vanguard):
    [www.aigretirementgold.com]

    Third, fund companies are starting to offer ‘income replacement’ mutual funds that generate income like an annuity. Typically these offer higher income but not the lifetime guarantee of an annuity. An example is Fidelity:
    [personal.fidelity.com]

  29. @K-Bo: (and everyone else): please, please, please do not get your investment or financial advice from a blogsite (or me for that matter). please consult a reputable investment institution. there are many, many more alternatives.

    places to look to get you started: vanguard. fidelity. lpl. ubs.

  30. Stan LS says:

    @ecwis: But it would also be impossible to put away that much $ as the salaries were way lower back then.

  31. @K-Bo: You will not continue to make 8% forever on it

    that’s not true. there are funds that have guaranteed payouts; i.e. an annuity.

  32. Munsoned says:

    Along with Myron’s analysis, I once saw a basic chart to help put into perspective the relative differences in people’s salaries. It’s admittidly simplistic, but here it is anyway:

    To retire at 60, you should have saved approximately “Y” x your yearly salary at the following ages. I think this assumes a 4% withdrawal rate post retirement to get about 80% of your salary, but I honestly can’t remember…

    Age (Y factor)
    35 (1.6 x your salary)
    40 (3.5 x your salary)
    45 (5.8 x your salary)
    50 (8.5 x your salary)
    55 (11.9 x your salary)
    60 (16 x your salary)

  33. Munsoned says:

    Of course, these numbers are not for everyone, I’m just trying to show that you need to find your relative salary % or factor, not a straight up number (like $1 million).

  34. veronykah says:

    Wow, if I didn’t have to pay student loans I could have a million dollars by age 65 instead?
    …depressing…

  35. K-Bo says:

    @pepe the king prawn: I do base my information on how much I will need on information I have gotten from vanguard and fidelity. Fidelity claims I will need $248,000,000 and some change. I plan on shooting for more than that. I’ve watched my parents retirement income being drained by their parents illnesses, and I realize that I need to plan for that possibility. Like I said, if I end up with way more than I need, not a problem, I’ll find a way to spend it. If I end up with too little, big problem, so I’m gonna err on the side of saving too much, it’s not like I need all the cheap crap I’d be spending that $400 or so a month on if it wasn’t going in savings.

  36. bonzombiekitty says:

    @K-Bo: $248 million?!

  37. SuperJdynamite says:

    The idea here is to start investing early — a point they could have made by simply saying as much.

    The reason you need so little when you’re younger is because of compounding interest on your investment portfolio. Gains from investments will pay for your retirement if you start a portfolio in your 20s — not so much if you start in your 50s.

    As for inflation, that takes care of itself when you invest wisely. You should avoid bonds when starting out because their rates, though guaranteed, aren’t too much higher than inflation. To keep your head above water your portfolio needs to do at least as well as “the market” (i.e. the S&P 500).

  38. K-Bo says:

    opp, sorry typing too fast, 2.8 mill.

  39. Hrm, $675/month. That’s $8100 a year. Let’s do some budget math.
    $750 in rent/month. $750 in loan payments (damn graduate degree). $80 in car insurance. $100 in gas. $50 to keep the lights on. $50 to keep the phones working. Whatever goes to the tax man. I haven’t bought food yet. It’d be nice if I could do it, but, it’s mighty hard. Even with the match on 401K. Hrm, $2900 into 401K by my hand, another $2900 by my employer’s. I guess it’s less than $100 per two week pay period beyond the 401K.

    Of course, that’s assuming I’m not bright and can willfully confuse investments with savings. Two difference animals, etc etc.

  40. K-Bo says:

    @SuperJdynamite: The reason they didn’t just say it is because some people just won’t respond until they see just how much starting early helps. To me it just made sense to start early because I have no kids, my car is paid off, I’ll never have less demands on my money than I do right now. Too many people assume they will have more money later, it doesn’t always happen though.

  41. nequam says:

    A few commenters are complaining that the advice doesn’t take into account factors such as quality of life and cost of living, etc. At least one other commenter questions why the advice does not suggest increasing your monthly savings over time. These are valid points with respect to smart retirement planning, but they miss the point.

    The point of the Kiplinger’s article is simply to show what it takes to save $1 million by age 65. Period. It shows that: (1) it is easier to do if you start early; and (2) if you start early enough, you’ll realize that you can in fact save more than $1 million.

    $1 million is not what it used to be (as they say), but it is still a big number and people get scared when they realize that maintaining their current lifestyle in retirement will require $x million. The Kiplinger guide shows, quite straightforward, that saving $1+ million is doable for many people.

  42. bonzombiekitty says:

    @K-Bo: I was gonna say, that’s a pretty ambitious goal there.

  43. Saboth says:

    @K-Bo:

    And do you realize that 16k per year would be plenty if your house and car were paid off? After that…what would you be spending money on? Food and utilities pretty much. Unless you are eating $900 a month in food, 16k is a lot of money if you take care of your other big budget bills before retirement.

  44. falc says:

    i tend to dismiss most of the articles telling me how much to sock away to meet the goal of what i will be spending 30-40 years in the future. the thing about life is that it wont follow your properly formatted little spreadsheet of savings and expense forecasts. life will get in the way: you’ll get laid off work, your spouse may die, the government may take too much of your money, you may get a divorce, get into a car accident, have too many kids, identity theft, you might move into your children’s home for retirement, aliens will land and declare marshall law, the kids will get drafted into the military… crazy things you’ll never expect or anticapte. i’m not saying that its worthless to plan ahead and save for retirement. but dont get disappointed or stressed when you dont meet your 401k quota for next year or you have to save 2.48 million dollars to have peace of mind. humans have a not-so-unique way of adapting to new situations and problems. i wonder how many retirees look back and run the numbers and see how they did and what went wrong…

  45. Fait Accompli says:

    @bladefist: A 8% rate of return gets you there for each age set. This doesn’t take into account any income tax, so the assumption must be 401(k) or SEP.

  46. Dibbler says:

    65 isn’t the retirement age anymore. Why are they saying 65? I can’t retire till I’m 67 and I think people 10 yrs younger than me are up to 69. Eventually they’ll say you can’t retire till you’re 99. I’m told by a government rep. that this has to do with people living longer

  47. nequam says:

    @falc: Savings would gird you against every one of the catastrophes you list, except maybe ID theft. Life’s unpredicatbility is a reason to save, not an argument against it.

  48. K-Bo says:

    @Saboth: Travel, health care ( 1 trip in the ambulance is $5000, that will put a dent in your budget right there )

  49. K-Bo says:

    @Dibbler: Save enough and you can retire whenever you want

    @nequam: EXACTLY!

  50. Bladefist says:

    K-BO – did you write the article? you seem to be commenting a lot.

  51. K-Bo says:

    nope, just had 2 parents who were accountants, so I’ve had saving and preparing for retirement drilled into me from the day I was born. Got worse when my parents realized even with all their planning they would have to work a few extra years because of their parent not having planned, and not being able to care for themselves. Proof that stuff happens, no matter how well you plan, but at least they were way ahead of most people their age, or they would be in bankruptcy court right now. That’s why I’m shooting for more than all the estimates say, that way a sick parent, or child, or even myself getting sick doesn’t mean financial ruin for me.

  52. selianth says:

    @Saboth: My parents are retired, in their mid-60′s, and easily spend that $16k a year on the travelling that they were never able to do when Dad worked. Plus, there’s all that spending on the grandkids that can really add up.

  53. falc says:

    @nequam: good point, although i dont see how padding the savings account would guard against alien invasion ;)

    (i guess i’ve been spending too much time on io9.com, Brought to you by Gawker Media, the wonderful creators of Lifehacker.com, Gizmondo.com and Kotaku.com!!! Meg, can i have some money now? i need to pay for daycare…)

  54. zcb says:

    This obsession with saving a million for retirement is another way we are being primed for the day when there will be no pensions (too costly for corporate America) and no social security (too costly for U.S. government). The numbers given above are accurate, using the power of 72, which assumes one can double one’s money in 9 years with an average 8% return. The problem is that for many people it’s totally unrealistic and totally impossible. Consider a general office clerk making $24,000, a stock clerk making $21,000 or a cashier making $18,000. How are they going to put away anything at all for retirement? They need every last dime on which to live. If you can save the recommended amount, more power to you, if not….I guess you work until you die.

  55. hexychick says:

    Yeah, cuz I’ve got $286 lying around every month. I have it cashed out in one’s and I roll around it on my bed.

  56. majortom1981 says:

    Yeah all this would work if you lived in a cheap place. I live on long island it its impossible to save here. WWhat makes it worse is that I have a great civil service job that I cant find in any other state so moving is not an option.

  57. jimconsumer says:

    @falc: “life will get in the way” .. All the more reason to save even more money yet. Learn from the squirrels, my friend. Learn from the squirrels.

  58. jimconsumer says:

    @majortom1981: That’s negative thinking. Impossible to save? I’ll bet you spend money on things you don’t need, that you could be saving instead. Hint: You don’t “need” a computer, a TV, video games, or a $10 hamburger at a local restaurant when you can cook one yourself for 50 cents. Moving is not an option? Yeah, right. Moving is always an option. You could always find a new line of work.

    I’m not trying to get on your case or anything. My point is, you can’t say “I’m stuck here and can’t move and can’t save” – that’s a bunch of baloney. You may choose to be stuck there and not save because you are unwilling to make certain sacrifices, but that’s not “I can’t”, it’s “I choose not to.”

  59. nequam says:

    @falc: It is well known that invading aliens are rendered powerless by the sight of bouncing orange savings balls.

  60. SoCalGNX says:

    Hmmm? If you live in the SW (CA/AZ), you can easily spend $300 a month on electric bills in the summer. To heat a house in other areas during the winter can total as much or more. Cable tv/phone/internet bills are about $100 a month packaged. Maybe you can buy a solar powered house before retiring but $16k is not alot even if your home and car are paid for.
    @Saboth:

  61. rhombopteryx says:

    @nequam:

    Nequam for the win.

    Exactly! The article isn’t about “inflation” or “quality of life” or what “retirement” age will be – it’s about how to get to a particular number….

  62. ShariC says:

    @jimconsumer:

    Great advice. You don’t need to do anything whatsoever to enjoy your life! Just work and save, work and save!

    For a lot of people, saving $50-$100 a month and not having a computer, television, or ever eating out for 30 years isn’t very worthwhile. I’m all for saving and manage to save about a grand a month myself right now, but there are a great many people living under tighter conditions than I who are going to find it hard to live an ascetic lifestyle for piddly savings.

    With the increasing numbers of working poor in America, this sort of problem is only going to get worse and the solution is not for people to eat ramen, beans and canned vegetables their entire lives while sitting in an empty room in order to save for retirement.

  63. bdslack says:

    @K-Bo:

    Here is a really basic investment tip.
    I’m 35 and have been putting away 15% of my income in retirement (or 15K whatever comes first since age 23. I WISH someone told me about this when I was in my 20′s.

    * An investment earning 6% will double in 12 years (72 divided by 6)

    * An investment earning 8% will double in 9 years (72 divided by 8)

    * An investment earning 10% will double in 7.2 years (72 divided by 10)

    * An investment earning 12% will double in 6 years (72 divided by 12)

    * An investment earning 20% will double in 3.6 years (72 divided by 20)

    So the market averages 12% since inception.

    So if you double every 6 years, think about puting away 4K in a ROTH IRA at 25 = 1,024,000 at age 65.

    Do that 3-4 years in a row (16K total), and you end up with 4,096,000.00.

    Do it every year, and (you do the math). AND IT IS TAX FREE WHEN YOU RETIRE!!!!!!!!!

    Save young, work hard, pack it away, you won’t regret it when you hit your first 1M by the age of 36.

  64. nrwfos says:

    Retire? No one’s going to retire completely. Only the sick and disabled will be able to “not work”. We’re only going to take on a new job “to be described at a later date”.

  65. BeFrugalNotCheap says:

    So what’s a good savings account to put money into? I have a roth IRA however I want to put money into something else long term (while keeping the Roth IRA) because I am 32 years old and don’t want to depend on SSI being around when I retire.

  66. BeFrugalNotCheap says:

    crap…I just noticed I’m only putting $50 into my Roth IRA per *month*. Since I just paid my car off I’ll increase it to $150 per month. Is that a good amount? (Directed at anybody listening)

  67. realserendipity says:

    I read all these comments hoping maybe someone had a tip for painless retirement planning but no such luck. For all those who say that saying that its too expensive or that they cant afford to retire, I managed to save 10% of my income last year and I only made 29G. I own a house, pay student loans and still even managed to live a little. Yes there were months that life was still more restrained than I would have preferred but seeing my 79 year old grandmother getting closer to the end of her life savings says that I should save every dime I can.

  68. brokeincollege says:

    100% stocks doesn’t make sense no matter what age. You’re taking on way too much risk.

  69. KJones says:

    @realserendipity:

    Some advice, since you want some:

    1. Save money in a foreign country if possible. Money in term deposits in a foreign bank could make more than at home, and may not be taxable in the US (check the law, since IANAL or an accountant).

    2. Buy shares in stable companies (e.g. IBM) for the long haul, 5 to 10 years or longer. If you get qualified shares, the dividends are not taxable income, and you can sell the shares later.
    [www.irs.gov]

    3. Work overseas, if possible. The first US$70000 you earn in foreign countries is not reportable (US government employees lose that exemption). I worked in Korea which has total income taxes and deductions of 5%, and some of that can be repaid to you when you leave the country. There are plenty of other countries with ridiculously low income tax rates and high wages for skilled labour where you can save thousands of dollars annually: Japan, Taiwan, UAE, etc.

    4. Retire in a poor but stable foreign country, not at home. US$1200/month in the Philippines offers the same quality of life as US$4000/month in the US.

  70. Jesse in Japan says:

    Every 286 dollars you put into your savings at 25 will be worth about 70 dollars by the time you’re 65, due to inflation.

  71. shoegazer says:

    A lot of people are missing the point, intentionally or otherwise.

    1. Yes, inflation erodes the value of your money. This is why you should save in instruments which beat inflation. Depending on your risk profile this can mean shares, bonds, or a high interest savings account.

    2. Nobody said a million dollars would be enough to retire on. This is about compound interest and the simple fact that you do NOT need to save a million to get a million. $286 a month is $137,280 over forty years. Yes your million will be worth less, but you didn’t SAVE a million dollars and lose value on it – at least if you saved consistently at an inflation beating rate.

    3. There is no such thing as “painless” retirement planning. No one is entitled to spend more than they earn and expect an easy ride when their income suddenly drops 20 years before they die. The whole concept of social security and retirement is built on an assumption that the growth of the economy will absorb the growth of population – this is not sustainable.

  72. normanm4 says:

    A million in 30 years? What will it be worth in 30 years under the domination of chinese currency?

  73. ecwis says:

    @befrugalnotcheap: Well $150 is probably not enough if you want $1 million by age 65! If you’ve saved $0 so far, you should save $671 a month. I know that’s probably too much but just use that as a guide.

    You can also use this calculator tool to see how much you should save. [cgi.money.cnn.com]

    Enter your info in Box 2 since your Roth IRA is a tax-deferred account.

    Also, a Roth IRA is great to have but if I were you, I’d have some aggressive funds in it since you have over 30 years until you need the money.

    If your employer has a 401(k), that can be a great option if they match contributions.

  74. ecwis says:

    @normanm4: It’ll probably be worth around 1/4 of what it is now. That’s assuming that Chinese currency isn’t doing worse than the US Dollar…

  75. olivia2.0 says:

    This is not a how to – it’s just simple division. I can do that – what I can’t do is figure out how to save $670 dollars a month!

  76. bonzombiekitty says:

    @olivia2.0: No, it’s not just simple division because the numbers are taking into account compounding interest at 8%. The point of the article is more that you have to save less per month (and less of your own money over all) if you start saving early.