3 Simple Strategies to Retire with $1 Million

If the thought of actually having enough money to retire keeps you up at night or gives you pause, you’re not alone. A recent survey by BankRate found that 45% of American workers believe they will never be able to save enough to reach at least $1 million in retirement savings. Additionally, 56% believe they are behind on their path to retirement.

If your goal is to retire with $1 million, it’s achievable, but it requires long-term planning. Here are three simple strategies to help you reach your million dollar mark and retire comfortably.

1. Start early. time is on your side

The biggest factor in achieving your retirement goals is time. The reasons why time is so important in markets are complex. Compound interest is the simple concept and powerful force of how your income generates more income.

Consider the numbers. If you are 25 years old and contribute $100 a month to your investments and earn an average of 10% per year, by the time you are 65 you will have $1 million. If you’re 30 years old and have a 35-year horizon, you’ll only have $620,000 with the same inputs.

In just five years, that’s a difference of nearly $400,000. The shorter the window, the more pronounced the reduction. If you’re 35 and have a 30-year term, you’ll have about $380,000, and if you’re 45 and have a 20-year term, you’ll have about $140,000 saved by age 65.

This shows the impact of compound interest, so the earlier you start, the better. It may seem impossible if you’re 45 and have little money saved, but if you start now, it might not be.

2. Obtain company-wide matching or higher

If you haven’t started investing yet, the best place to start is your employer’s 401(k) plan. The reason this is essential is because it offers company matching where you can get free money up to a certain percentage. Most companies will have a 4% company match, but some may have 2% or 3%, or even a 50% match up to a certain percentage. Whatever it is, make the most of it.

Let’s look at the difference between contributing 2% and 4% of your salary to a 401(k) at a company that offers a 4% match. If you’re 35 years old, make $50,000 a year, get a 3% annual raise, earn 8% a year on investments, and contribute 4% to your 401(k), you’ll have about $635,000 when you retire. 65 years old. About $95,000 of that comes from employers through matches. If you contributed just 2%, you would have about $317,000 after 30 years, with only $45,000 coming from your employer.

If you are older and need to play catch-up, it makes sense to increase your contribution to 10%, even if it only matches 4%. You can also invest more aggressively to increase long-term returns. If you’re 45 years old, earn $65,000 per year (assuming a 3% annual increase), contribute 10% to your plan, and earn an average return of 10%, you’ll have about $540,000 at age 65.

If you donate 10%, you will definitely get a larger portion of your paycheck. Assuming an annual salary of $65,000, that works out to about $250 per month if you get paid every other week. But it helps to have the mindset that you are actually paying, and it is non-negotiable, just like paying other bills is non-negotiable. If you’re short on time and have other pressing priorities at the moment, it may be helpful to budget to find where you can save $100 or so per week to pay for yourself.

3. Supplement your savings with ETFs

As discussed, if you start investing early enough, you shouldn’t have much trouble reaching the $1 million plateau as long as you’re committed to investing. If you’re starting later or falling behind, the first thing you should do is start now, and your primary vehicle should be your company plan. However, your secondary vehicle should be an investment portfolio outside of your retirement plan.

If building a stock portfolio that generates solid returns sounds too daunting, invest in a single, broad-based exchange-traded fund (ETF). One that tracks the S&P 500 gives you access to all the stocks in the S&P 500 in one fund, and that benchmark has returned an average of 10% per year over the past 10 years and 7.6% per year over the past 20 years.

ETFs that track the Nasdaq 100 provide access to all the stocks in that index. The Nasdaq 100 has averaged an annual return of 17% over the past 10 years and 13% over the past 20 years.

An initial investment of $5,000 in an S&P 500 ETF would grow to about $105,000 after 20 years and nearly $300,000 after 30 years, assuming a $25 per share investment and a 10% annual return.

By combining these supplemental ETF investments, 401(k), and Social Security, you’ll have about $1 million by retirement age.