How to Retire With $1 Million

Saving for retirement is an important part of financial planning for most Americans. This is especially the case with pensions no longer widespread and Social Security not enough to cover retiree expenses. Therefore, it’s up to individuals to put aside money for their later years. If you do it right, relaxation and recreation will replace work and earnings. However, the amount you need to save for retirement depends on where you live and your expected lifestyle. Saving $1 million is a goal many set for themselves, but there are several steps to take to get there.

If you want help increasing your retirement savings, consider working with a financial advisor.

Start Saving Early

Retirement can seem a very long way off, especially for those straight out of college or working their first jobs. After all, you usually have at least another 40 years of working before it’s time to think about which beach to park yourself on. Even though retirement may seem like a distant dream, it’s still important to start saving as soon as it’s financially possible.

Compound interest is key here. When saving for retirement, you should invest in different types of assets, such as these.

• Mutual funds
• Stocks
• Bonds
• ETFs that track a market index

Ideally, the shares you purchase grow in value over time, boosting your retirement savings.

When you invest early, you give your money more time to grow. In fact, some studies show that those who save for retirement from ages 22 to 32 and then stop will end up with more money than someone who saves from 32 until retirement (assuming salary and contribution totals hold steady).

That means if you want $1 million by the time you retire, you must start saving as early as possible.

Maintain a Strong Asset Allocation

Even if you start saving from your first day of work, there’s no way you’ll end up a millionaire at retirement without smart investing. Therefore, building a portfolio with an appropriate asset allocation is one of the most important moves you can make. It can help you determine how to achieve the funds you want when you retire.

Generally speaking, you should be very aggressive with your asset allocation strategy early on in your career. This means directing your investments to stocks and other equities. Although riskier, these investments can yield major returns. That’s because early in life, you can afford to take risks with the goal of ample growth later.

As you get older and near retirement, your asset allocation should start to taper towards a more conservative balance. This means less money should go into stocks; instead, funds should be funneled to bonds, ETFs and other lower-risk investments.

As you can imagine, when you’re closer to retirement, you need to be more careful about risk. This is because if something goes sideways, you won’t have time to earn that money back.

While these are the basics of an asset allocation, planning can be complex. This is where a financial advisor can help you develop the right strategy.

Make and Stick to a Budget

One of the simplest ways to save $1 million for retirement doesn’t require any financial know-how or investment vehicles. All it takes is understanding the simplest of financial concepts: you can’t save money you spend.

The first step is to ensure you take advantage of your 401(k) or another workplace retirement plan. With this, money goes directly into your retirement savings instead of your bank account. That way, you never have a chance to spend it.

However, a successful retirement savings plan will likely involve more than just a 401(k). You’ll need to put money aside each month from your account as well.

This is where a budget can help you save for the future. Unless there’s an emergency, such as a medical issue or a major car repair, make regular monthly deposits into a savings or investment account.

Making smart decisions about your spending will help you boost your savings now. Therefore, you should avoid buying the most expensive cars and vacationing at sensible, not overly pricey, spots.

How an Advisor Can Help You Create a Plan to Retire With $1 Million

Retiring with $1 million is a clear goal. However, the real question is whether $1 million will be enough for your specific situation.

Budget

A financial advisor can run the numbers using your expected retirement age, monthly spending, healthcare costs and income sources, such as Social Security.

Based on these factors, you can together determine whether $1 million will actually cover your needs. For someone retiring at 55 with no pension, $1 million may fall short. For someone retiring at 67 with a paid-off home and Social Security income, it may be more than adequate.

Investments

The most direct path to $1 million is a consistent savings rate invested in low-cost, diversified funds over time. A financial advisor can calculate exactly how much to save each month to reach $1 million by your target retirement date, while also accounting for realistic market returns and inflation.

Say you are a 30-year-old earning $70,000. To reach $1 million by 65, it may require contributing roughly $500 to $600 per month into a diversified portfolio. This assumes average annual returns of around 7%.

Account Types

Account selection determines how much of that $1 million you actually get to keep. A financial advisor can help you split contributions between a traditional 401(k), a Roth IRA and a taxable brokerage account in proportions that help lower your taxable income.

Retiring with $1 million across different accounts is far more favorable when managing taxable income than contributing the entire amount in a traditional IRA, where ordinary income tax applies to every withdrawal.

Social Security

Social Security strategy directly affects how hard your $1 million has to work in retirement.

Claiming at 62 versus waiting until 70 can mean a difference of $1,000 or more per month in guaranteed income. A financial advisor can model how different claiming ages affect the rate at which you draw down your $1 million.

In many cases, delaying Social Security extends the life of your portfolio by five or more years.

Healthcare

Healthcare is one of the expenses most likely to derail a $1 million retirement plan. A 65-year-old couple can expect to spend an average of $300,000 or more on healthcare throughout retirement. This is a figure that does not include long-term care.

A financial advisor can help you determine whether a portion of your $1 million should be earmarked specifically for healthcare. This can be done in several ways.

• Health savings account (HSA)
• Medicare supplement plan
• Long-term care insurance policy

Withdrawals

Withdrawing from a $1 million portfolio in a way that makes it last requires a deliberate strategy.

The commonly cited 4% rule suggests withdrawing $40,000 per year from a $1 million portfolio. However, that rule has limitations depending on market conditions and retirement length ¹ . A financial advisor can build a withdrawal plan that adjusts based on market performance, spending needs and other income sources. With this, you give your $1 million the best chance of lasting as long as you need it to.

Bottom Line

Retiring with $1 million in savings is a tall order, but it certainly isn’t impossible. You must ensure you save early with a strategic asset allocation. Also, be careful not to spend so much that you cannot save for the future. While these tips won’t guarantee success, they will certainly put you on the path towards a secure retirement.

Retirement Planning Tips

• One way to get yourself on the track for saving $1 million is to get help from a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• An annuity is another investment to consider as a way to create retirement income. There are various types of annuities, like variable, fixed and indexed. In turn, make sure you do your research and find out which is best for you.

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