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Saving for retirement takes decades of consistent work, but it’s more important than ever to have a healthy nest egg heading into your senior years.
While the amount you should aim to save by retirement age will depend on your unique circumstances, a common goal is to have a nest egg worth at least $1 million. If you have 25 years to invest, here’s what you might need to contribute each month to your 401(k) to reach that goal.
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Your timeline will determine your monthly goals
The more time you have to let your money grow, the less you’ll need to contribute each month. This is thanks to the power of compounding. You’ll earn returns on your total account balance, so the more your savings grow, the more you’ll see in earnings — creating a snowball effect over time.
The sooner you can get started saving for retirement, the easier it will be to build a robust nest egg. Giving yourself at least a couple of decades to save will make it far more attainable to reach $1 million or more.
Exactly what you’d need to contribute each month will depend on the returns you’re earning on your investments. Historically, the stock market itself has earned an average rate of return of around 10% per year. Depending on whether you’re investing more aggressively or conservatively, your returns may vary.
Your goals could also shift depending on how the stock market fares in the coming decades. While the market’s returns over decades have averaged out to around 10% per year, there’s no guarantee we’ll continue to see similar performance going forward. This is also why it’s important to give yourself a longer timeline to save, as the market’s short-term horizon can be incredibly volatile at times.
Building a $1 million retirement fund
Let’s say that you’re earning a 10% average annual return, in line with the market’s historic performance. If you have 25 years to save, you’d need to invest around $850 per month to reach $1 million in total savings. However, if you have even a few more years to invest, it will be exponentially easier to achieve your goal.
| Number of Years | Amount Invested Each Month | Total Savings |
|---|---|---|
| 25 | $850 | $1.003 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Author’s calculations via investor.gov.
Sometimes, investing outside of a 401(k) can also make it easier to reach your goals. While 401(k)s are powerful retirement accounts, they generally don’t offer many investment options. That’s not necessarily a bad thing, but if those funds underperform the market, you’ll need to save more each month to make up for it.
Investing at least some money in an IRA or even buying individual stocks can give you more control over your portfolio. By investing in stocks or funds that have more potential for long-term growth, it could help your money grow faster with less effort on your part.
Regardless of your retirement goals or how much you aim to invest each month, getting started sooner rather than later will make saving far easier. With enough time, you could even build a retirement fund worth $1 million or more.
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