Financial experts often recommend saving up $1 million for retirement. If you start saving in your 20s, contributing 10-15% of your paycheck will likely allow you to meet your retirement savings goal. With every decade you delay, however, you’ll need to save a greater percentage of your paycheck. At the same time, many financial planners also suggest saving anywhere between 10% and 15% of your gross salary.
But how much do you need to earn to comfortably save each month and still end up with enough in retirement?
Here is the amount you’d need to earn annually in order to save $1 million by 65 by putting 10% of your earnings into investments.
If you start at age 25:
With a 4% rate of return, you need to earn $101,189 per year and save $843.23 per month.
With a 6% rate of return, you need to earn $59,957 per year and save $499.64 per month.
With an 8% rate of return, you need to earn $34,146 per year and save $284.55 per month.
If you start at age 30:
With a 4% rate of return, you need to earn $130,893 per year and save $1,090.78 per month.
With a 6% rate of return, you need to earn $83,809 per year and save $698.41 per month.
With an 8% rate of return, you need to earn $51,967 per year and save $433.06 per month.
If you start at age 40:
With a 4% rate of return, you need to earn $232,629 per year and save $1,938.57 per month. (exceeds the $19,000 annual limit on 401(k) contributions)
With a 6% rate of return, you need to earn $172,300 per year and save $1,435.83 per month.
With an 8% rate of return, you need to earn $125,344 per year and save $1,044.53 per month.
To be sure, these are high salaries. In fact, the median household income in the U.S. is $61,372, according to the most recent data. Even if you don’t earn much now, save what you can and work your way up to 10 or 15%. As your salary rises, increase your retirement contributions as well.
For further context, the average American’s 401(k) plan grew at a compound annual average rate of 14.2% between 2010 and 2016, according to a study of more than 6 million accounts. Of course, there’s no guarantee of similar growth in the future.
And it’s possible to retire on less than $1 million — many Americans live on much less — though experts suggest hitting the $1 million goal in order to have enough for expenses including health care in older age.
If your company doesn’t offer a 401(k) or comparable plan, you can still save for the future. Consider other retirement savings vehicles that offer tax benefits, such as a Roth IRA, traditional IRA and/or a health savings account. A conversation with your CPA annually prior to year-end will be your best bet for tax and retirement planning.
The most important thing is that you start saving and investing as much as you can as early as you can so that you can take advantage of compound interest, which is when any interest earned then accrues interest on itself. No matter the amount you’re contributing, the earlier you’re able to start socking money away, the bigger the boost the stock market will give you.
in part, CNBC.com