Here’s How To Save $1 Million for Retirement With Just $10 a Day
Saving $1 million for retirement sounds like a solid goal. However, it also sounds overwhelming. But what if you could break down that goal in manageable chunks — saving just $10 a day?
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Here’s how to do it, according to an expert. Plus, find out whether $1 million is the right savings goal for you.
How To Save $1 Million in Retirement With Just $10 a Day
If you save $10 per day, that equals $3,650 each year. Jared Virgadamo, investment associate with Manske Wealth Management, said, “[By] saving this amount each year in an investment account that grows 8% annually, you could have a $1 million retirement portfolio in 41 years,” he said.
However, Virgadamo pointed out that this scenario makes several assumptions, like no missed contributions and how much annual growth your investment account has. Even so, he said starting to save early and doing so consistently is important when it comes to your retirement.
“Because even if the growth of your investments isn’t exactly 8% — even if you miss a day or a month or even a whole year of payments at some point over those 41 years — you will still be closer to your goal than if you didn’t save anything,” he explained. “So save early and be consistent.”
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Tips for Saving Consistently
“The best thing you can do to save money is to keep your hand on the wheel of your finances,” said Virgadamo. “Oftentimes, it can feel uncomfortable to look at our finances, because we know we haven’t made the best financial decisions. So because it’s uncomfortable, we bury our heads in the sand, we don’t look at how much we have in our checking account, we don’t look at our credit card balances and we spend.”
Virgadamo said it’s important not to bury your head in the sand and ignore your finances.
“Make an appointment with yourself to plug into your finances each week and look at what you spent, look at how much money is in your checking and check the balances on your debt,” he said. “Credit card balances will creep higher if you don’t stay on top of them. Stay engaged [and] keep your hands on the wheel of your finances. The first step to saving money and improving your financial situation is to know where you are right now.”
Is a $1 Million Retirement Portfolio a Good Goal?
According to Virgadamo, a $1 million retirement portfolio is not a good goal for most Americans, because it’s a blanket approach and doesn’t specifically address each individual’s needs or desires.
“For example, how much money people annually spend in retirement can vary widely,” he explained. “If someone plans to spend $100,000 per year in retirement, a $1 million portfolio will only last 10 years before it’s gone.”
Virgadamo said many financial professionals use the 4% rule to plan how much to withdraw each year during retirement.
“The 4% rule says you can withdraw 4% of your retirement portfolio each year to live on, and this improves the likelihood of the portfolio lasting from the start of the individual’s retirement until their passing,” he explained. “Because, as you withdraw 4% each year, the investments in your portfolio should be growing, as well, through dividends, interest and appreciation.
“Using the 4% rule, someone with a $1 million portfolio can withdraw $40,000 each year to live on.”
“So before deciding if a $1 million retirement portfolio is the right goal for you, ask yourself these questions. How much will you need to withdraw each year to live on? Do you expect to receive Social Security? If so, how much? How will your monthly expenses change in retirement?”
Virgadamo said you should also consider various other factors, including taxes and inflation, which he admitted might be overwhelming.
“If you need help determining a good retirement goal that is specific to you and your situation, consider reaching out to a financial advisor in your area to help you come up with that number,” he suggested.
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This article originally appeared on GOBankingRates.com: Here’s How To Save $1 Million for Retirement With Just $10 a Day