For a long time, becoming a millionaire has been synonymous with becoming wealthy. While $1 million doesn't go nearly as far as it used to, it's still a generous sum that can help set you up for a secure retirement. But saving so much money may seem like a pipe dream for many, especially for the millions of Americans looking at a bank account with little spare cash.
If you're aiming to hit the $1 million target but just aren't sure if it's possible, it can be helpful to look at the feasibility of that on an average salary.
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What it takes for the average American to hit $1 million in savings
For most people, it makes sense to begin saving as early as possible even if they can't save much. Then, as their income goes up, they'll increase the amount they're putting away for retirement so they can grow their nest egg faster.
To keep things simple, the table below assumes you'll keep your savings the same throughout your career and shows the amount you'd need to set aside to hit your $1 million goal by age 65, depending on what age you start and assuming a 7% annual return on investment. It also shows the percentage of income you'd need to save to hit your target if you earned the median salary in each age range.
Age You Start Saving | Median Annual Income | Annual Amount to Save to Become a Millionaire by 65 | % of Income You'd Need to Save |
|---|---|---|---|
25 | $47,736 | $5,025 | 10.53% |
35 | $59,020 | $10,600 | 17.96% |
45 | $59,488 | $24,500 | 41.18% |
55 | $56,680 | $72,500 | 127.91% |
Table data: Bureau of Labor Statistics; calculations by author
Is it feasible to save so much?
As you can see, if you start early enough, it's not very hard to become a millionaire even if your income is just average. You can save 10% of your income in your mid-20s and hit your target. Andif your income goes up, you could even keep your savings rate the same and still become a millionaire. If you jumped up to making $59,020, for example, you could continue investing just $5,025 per year (around 8.5% of income) and still have a $1 million nest egg by 65.
But you shouldn't do that because you don't want to save less than 10% to 15% of income, especially since $1 million won't be worth nearly as much by the time you retire when there are so many years of inflation to factor in. Still, your early efforts would pay off, making it easier for you to amass a small fortune.
The longer you wait, though, the less feasible it becomes to save $1 million on an average salary. If you don't start saving until you're 45 and want a seven-figure nest egg as a retiree, you'd need to save more than $4 out of every $10 you make, and that's just not doable for most people.
And if you wait until just 10 years before retirement, you can kiss the idea of becoming a millionaire goodbye if you make an average income. You'd have to save more than 100% of your earnings to invest enough to reach that milestone.
That doesn't mean you should give up on saving for a secure retirement if you've waited, though. You may not be able to hit $1 million, but the sooner you begin putting aside money and the more aggressive you are with your contributions, the more comfortable your retirement will end up being.
Should you aim to become a millionaire?
Remember when I said above that $1 million doesn't go as far as it used to? The reality is that saving a $1 million nest egg will only provide you with about $40,000 a year in income in retirement.
While that's probably enough when combined with Social Security benefits, it'll hardly guarantee you a life of leisure. The bottom line is, $1 million is a good retirement savings goal for most people. And if you aim much lower, you may come to regret it, especially considering the impact of taxes, inflation, and healthcare on your nest egg.
Becoming a millionaire will likely require some sacrifice if your salary is just average, but it is doable if you start early, save aggressively, or both. So start working on it today.
I bring a wealth of expertise and practical knowledge in the realm of personal finance, retirement planning, and wealth accumulation. My insights are grounded in a thorough understanding of economic principles, investment strategies, and retirement savings dynamics. As an enthusiast who has delved deep into financial literature, market trends, and retirement planning tools, I am well-equipped to guide individuals on their journey to financial security.
Now, let's break down the key concepts and ideas presented in the provided article:
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Objective: Accumulating $1 Million for Retirement
- The central theme of the article revolves around the idea that, despite the changing value of money, accumulating $1 million remains a significant milestone for financial security, especially in retirement.
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Savings Strategy and Early Start
- The article emphasizes the importance of starting to save early in life. It suggests that even with a modest income, individuals can accumulate $1 million by consistently saving a percentage of their income over time.
- The recommended strategy involves starting with a lower savings percentage and gradually increasing it as income rises throughout one's career.
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Table Data and Median Salaries
- The article provides a table illustrating the relationship between the age at which an individual starts saving, the median annual income at different age ranges, the annual amount needed to save to reach $1 million by age 65, and the percentage of income required to achieve this goal.
- The data is derived from the Bureau of Labor Statistics, adding credibility to the calculations presented by the author.
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Feasibility of Saving $1 Million
- The article asserts that, if individuals start saving early, it is relatively feasible to accumulate $1 million, even with an average income. The key is to establish a consistent savings habit and potentially increase the savings rate as income grows.
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Challenges of Delayed Savings
- The article highlights the challenges of delayed savings, pointing out that the longer one waits to start saving, the more difficult it becomes to reach the $1 million goal on an average salary.
- It emphasizes that waiting until just a decade before retirement makes it nearly impossible to become a millionaire without an unrealistically high savings rate.
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Retirement Income Considerations
- The article discusses the limitations of $1 million as a retirement goal, noting that it may not provide a luxurious retirement lifestyle. It advises considering factors such as taxes, inflation, and healthcare costs that could impact the purchasing power of the accumulated savings.
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Conclusion and Actionable Advice
- The article concludes by encouraging readers to start working towards their retirement goals today. It suggests that becoming a millionaire is achievable through early initiation, aggressive savings, or a combination of both.
In summary, the article provides a comprehensive overview of the feasibility of saving $1 million for retirement, offering practical insights and data-driven recommendations for individuals at various stages in their careers.
