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Strategies for a successful retirement

How Much You Need to Earn to Save $1 Million for Retirement

Saving $1 million for retirement is a common financial goal, but the income required to achieve it varies based on when you start saving, your savings rate, and investment returns. Factors like lifestyle, location, and personal circumstances also play a role, but $1 million remains a widely recognized target for a secure retirement.

The key to reaching this milestone lies in consistent saving—ideally 15% of your income, as recommended by certified financial planner David Blanchett. Starting early maximizes the power of compound interest, allowing even modest earners to hit the $1 million mark by age 65.

Income Needed to Save $1 Million

The following data, based on CNBC calculations, shows the annual salary required to save $1 million by age 65, assuming a 15% savings rate and different rates of return (4%, 6%, or 8%):

• Starting at age 25:

  • 4% return: $67,684

  • 6% return: $40,171

  • 8% return: $22,916

• Starting at age 30:

  • 4% return: $87,553

  • 6% return: $56,152

  • 8% return: $34,875

• Starting at age 35:

  • 4% return: $115,266

  • 6% return: $79,640

  • 8% return: $53,678

• Starting at age 40:

  • 4% return: $165,886

  • 6% return: $124,783

  • 8% return: $92,310

Starting later requires a higher salary or better investment returns to reach the same goal, as there’s less time for compound interest to work. Many savers contribute less early in their careers when incomes are lower, increasing savings later as earnings grow.

Tracking Your Retirement Progress

To gauge whether you’re on track, Fidelity’s benchmarks provide useful guidelines based on your age and annual salary:

• By age 30: Save 1x your annual salary

• By age 35: Save 2x your annual salary

• By age 40: Save 3x your annual salary

• By age 45: Save 4x your annual salary

• By age 50: Save 6x your annual salary

• By age 55: Save 7x your annual salary

• By age 60: Save 8x your annual salary

• By age 67: Save 10x your annual salary

These are general targets, and your needs may differ based on lifestyle or financial goals. Tools like Morning Download Retirement Calculator can help estimate your savings target based on age, income, and current savings.

Maximizing Your Savings

Even if you can’t save 15% initially, starting with any amount is better than delaying. Small contributions early on benefit from decades of growth. Additionally, boosting income through side hustles or career advancement can accelerate progress.

This table outlines the annual salary needed to save $1 million for retirement by age 65, assuming a 15% savings rate and varying rates of returns:

Strategies to Boost Your Retirement Savings

To reach the $1 million goal, consider implementing these practical strategies:

1. Take Advantage of Employer Matches: If your employer offers a 401(k) match, contribute enough to capture the full match—it’s essentially free money that accelerates your savings.

2. Automate Your Savings: Set up automatic contributions to retirement accounts like a 401(k) or IRA. This ensures consistency and reduces the temptation to spend the money elsewhere.

3. Invest Wisely: Diversify your portfolio with a mix of stocks, bonds, and other assets to achieve a balanced return (e.g., the 6% or 8% assumed in the calculations). Low-cost index funds or ETFs can minimize fees and maximize growth.

4. Reduce Expenses: Cut unnecessary spending, such as dining out or subscription services, and redirect those funds to savings. Even small reductions can add up over time.

5. Increase Contributions Over Time: As your income grows, incrementally increase your savings rate. For example, boost your contribution by 1% annually or whenever you receive a raise.

Adjusting for Inflation and Lifestyle

The $1 million target assumes a certain level of purchasing power, but inflation can erode the value of your savings over time. For example, at a 3% annual inflation rate, $1 million today could be worth significantly less in 30 years. To maintain the same purchasing power, you may need to aim for a higher savings goal, such as $1.8 million in 30 years, depending on inflation projections.

Your lifestyle also impacts how much you need. If you plan to retire in a high-cost area or maintain an active lifestyle (e.g., frequent travel), you may need more than $1 million. Conversely, a frugal lifestyle or relocating to a lower-cost area could reduce your target. Use a retirement calculator to adjust for inflation and personalize your savings plan based on your expected expenses in retirement.

By starting early, leveraging compound interest, and adopting smart savings strategies, you can work toward the $1 million retirement goal, regardless of your current income.

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.