Saving

Here's how much money you need to save per paycheck if your goal is to retire a millionaire, and you start at age 18

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Key Points
  • The earlier you start investing, the more potential for compounding growth in your investments.
  • "You want to know how much you need to put away to reach your desired retirement goal," says Tania C. Foster, a senior investment advisor in South Carolina.

When it comes to investing for a long-term goal such as retirement, the earlier you start, the better. "The greatest money-making asset a person can possess is time." Ed Slott, publisher of IRAHelp.com, recently told Grow.

The earlier you start investing, the more years in the market you have to take advantage of the potential for compounding growth in your investments. Compounding growth is the concept that your principal investment will grow faster over time due to the continual reinvestment of account earnings like dividends or market returns.

Saving at least $1 million for retirement may seem like a big undertaking, but if you start investing at age 18 and break down how much you need per paycheck over the course of your career, the task can look more manageable.

"You want to know how much you need to put away to reach your desired retirement goal," says Tania C. Foster, a senior investment advisor in South Carolina. "Many people don't know exactly how much of their working income they should be saving for their ideal lifestyle at retirement, so it's important to know what that number is to ensure that you meet your goal."

How much you need to save per paycheck if you start at age 18

Grow's retirement calculator estimates that over time you could see an average annual growth of 5% to 10%, adjusted for inflation. Some experts say you can safely use 8% for hypothetical estimates, which has been roughly the compound annual growth rate of the S&P 500 since 1980.

Let's say you start investing at age 18 with a goal of reaching $1 million by age 65. Assuming you receive biweekly paychecks (26 per year), and anticipate conservative average annual growth of 6%, you'd need to contribute about $147 per paycheck to hit that goal.

That works out to about $3,822 per year — well within the annual contribution limits for either an IRA or a 401(k). For 2022, younger investors can contribute up to $6,000 in an IRA, and up to $20,500 in a 401(k).

Remember, using hypothetical numbers are a great way to create goals for your future, but not a guarantee. These calculations don't consider future market volatility, fees, or other fluctuations that may affect the value of any investment account.

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You may need more than $1 million to retire comfortably

Grow's retirement calculator, which tailors a personal goal based on your desired retirement income and other factors, could indicate a retirement target of more than $1 million. Don't panic: While starting early can be a big advantage, there are other strategies that can give you a boost.

  • Consider opting into auto-escalation. Some workplaces offer a 401(k) feature called auto-escalation wherein your employer automatically increases your savings rate at set intervals. Setting up automatic contribution increases can scale up your savings over time.

    "Anything you can do so [funds] automatically goes toward retirement" is beneficial to your future, Mark Prendergast, a CPA and CFP who is also the director of tax strategies at Inspired Financial in Huntington Beach, California, told Grow.
  • Make the most of your employer match. A match is free money your employer kicks in toward your retirement, based on how much you contribute. Most plans will match between 3% and 6%, with a median value of 4%, according to data from Vanguard

Saving for retirement is a marathon, not a sprint

Many Americans want at least $1.9 million in the bank, on average, by the time they retire, according to Charles Schwab. And a majority say they're "very likely" to reach that savings goal. 

Keep in mind that saving for the future is a marathon, not a sprint. Wherever you are on your path, taking a practical budgeting approach can help. Living within your means and sticking to a savings plan can help make your money work for you.

"You have to adopt a mindset of paying yourself first," Foster says. "That means, contributing a portion of your income in your employer plan, electing to have any employer monetary incentive deposited into that plan, and increasing your contributions each time you receive a raise."

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