Here's What It Takes to Save $2 Million for Retirement

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Forget get-rich-quick schemes. The earlier you begin saving and investing for retirement , the straighter the path will be. Even if your 20s, 30s, or 40s are in your rearview mirror, you still have time to create a more comfortable retirement.

We'll cover what it takes to reach the $2 million mark, but we're not going to mislead you. For some readers, it won't be possible. To those of you with less time to dedicate to saving, we say this: Do not give up. Anything you do now to plan for your golden years is sure to make your life easier.

Saving in a 401(k)

With a 401(k) plan, you invest a portion of each paycheck and allow that money to grow until retirement. Whether your employer offers a 401(k) or you set up a self-employed plan, it's a pretty sweet way to build wealth. About 38% of the working population invests in a 401(k), making it the most popular retirement savings plan, according to Fidelity.

Let's say you earn $5,000 monthly. If you begin by contributing 5% to a 401(k), your monthly contribution would be $250. For the sake of this illustration, let's imagine that your employer matches $1 for $1 up to 3% of your salary. Between your contribution and the match added by your employer, you have $400 going into the account. Here's what that would look like with an average annual return of 7%.

You'll notice two things with this table:

1. It assumes that you'll never increase your monthly contributions.
2. Based on these calculations, meeting the $2 million threshold would require a larger monthly contribution. For example, a 25-year-old with a total monthly contribution of $750 could retire at age 67 with a nest egg of $2,075,690. A 35-year-old retiring at 67 would need to save $1,525 per month to retire with just over $2 million.

Saving in an IRA

An individual retirement account (IRA) is another type of account that helps people save for retirement. There are several types of IRAs, including traditional and Roth IRAs, and each type has different pros and cons. The maximum amount you can currently contribute to an IRA is $7,000 if you're under the age of 50. If you're 50 or older, that amount gets bumped to $8,000.

Let's take a look at the numbers assuming a $7,000 or $8,000 annual contribution and an estimated annual return of 7%.

A $2 million retirement fund does not have to come from a single source. For example, you'll add in Social Security payments, pensions, annuities, rental income, dividends, and any other retirement money you expect to receive.

A retirement plan based on you

Regardless of your current age or when you want to retire, you need a roadmap to guide you. These steps can help.

Determine how much you need

How much you need to live comfortably in retirement may be quite different from the amount someone else needs.

Are you planning to travel the world, or are you happiest spending time with friends and family? Do you want to buy a boat, or would you rather sit on the bank of a lake and fish? Create a rough budget based on the life you want to live. That's the number you're aiming for.

Figure out how much money you can expect

Once you've added guaranteed income to savings and investments, how much money can you expect to deposit into your checking account each month? Do you need more? Now's the time to figure out how you're going to generate the extra funds.

Increase your income

If it's clear that you're not going to have enough regular income to meet your needs each month, consider ways to supplement it. That may mean taking on a part-time job that allows you to invest more today. Maybe you'll want to start a small business doing something you love while also bringing in extra money. If you live alone, it could mean renting out a portion of your home to someone you know and trust.

Pay down debt

You can enjoy a truly rich life by living below your means. If you're carrying debt, focus on paying off as much as possible before you hit retirement age. Focus first on any high-interest debt, like credit cards or personal loans.

Involve a professional

Don't be afraid to make an appointment with a Certified Financial Planner™. You don't have to be wealthy to work with a professional, and you don't have to hand over the entirety of your savings. Many financial planners will work with you on an hourly basis to help you come up with a realistic plan for your future.

It's possible to save $2 million for retirement if you start early and/or invest aggressively. However, if you're not going to reach that amount, it may not matter. What matters most is having enough money to cover the basics and leave you with the funds to enjoy yourself. Only you can determine how much that is.

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