Most Millennials Want to Retire With $1 Million—Follow These 4 Steps and You Actually Could
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"When saving for far-off goals like retirement, your nest egg should be invested in the stock market. Yes, there will be periods of short-term choppiness in stock prices along the way, but the long-term returns are more attractive than any savings account can offer."

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More than half of millennials expect to be millionaires someday. The reality? Many aren’t on track to achieve that goal.

That’s the sobering conclusion from a piece published this week by “The Economist.” It’s not just poor savings habits that are derailing young workers. Millennials have the deck stacked against them, according to the Brookings Institution: They are less wealthy than prior generations, grappling with higher student debt burdens, and have had to navigate a rocky career journey because of the 2007-2009 recession.

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But there are actions you can take to give yourself the best possible chance of achieving a seven-figure portfolio for retirement. Following these four steps can help set you up for success:

1. Run the numbers on your goal

Whether you target a specific dollar figure or a broader goal of financial independence, the first step is to identify why you’re saving—and what your real goal should be.

“Figure out why you want that $1 million in the first place,” says Grant Sabatier, creator of the Millennial Money blog and author of “Financial Freedom,” who became a self-made millionaire in less than six years.

If $1 million is your goal and you start saving at the age of 25, you’ll need to set aside $5,400 each year until you’re 67, according to an analysis by NerdWallet. If you wait until you’re 30 to start, you’ll have to save $7,450 each year.

But don’t assume $1 million is a magical number, cautions Douglas Boneparth, president of Bone Fide Wealth in New York City and author of “The Millennial Money Fix.” “Everyone likes that big, round number, but it can be a distraction from actually putting the type of planning in place that will help you to actually achieve your goals,” he says.

If you start saving at 25, you’ll need to save a minimum of 10% of your earnings each and every year to be able to retire at 65 with financial security, according to figures from the Center for Retirement Research at Boston College. Wait until you’re 35 to begin saving and you’ll need to set aside at least 15%. You’ll need to save even more if you delay past 35, or your goal is to retire before age 65.

Whether your target is a dollar figure or a savings rate, keep in mind that not all of that money needs to come from you. If you’re contributing to a 401(k) or other workplace savings account, your employer may chip in with matching funds.

2. Earn more to save more

OK, but what if those savings guidelines seem impossible? Don’t despair. Save as much as possible now, then make it your goal to earn more money in the future so you can save even more money.

Most people can’t increase their income overnight, so instead boost your savings rate—or the percentage of your income you save. Sabatier says the most important thing he did on his million-dollar journey was to increase his savings rate to as much as 50%—and recommends other savers try to get theirs to at least 20%.

Aim to keep the big expenses—think: housing, transportation, and food—as low as possible. “Save the most money where you spend the most money,” recommends Sabatier, adding that when you’re in your 20s, financial decisions you make in the next 5 to 7 years are the most important ones you’ll make.

The habits you develop now can make an admittedly difficult task of achieving financial independence more achievable, Boneparth says. “The hardest part is developing the discipline to consistently save and be a disciplined investor.”

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But eventually you’ll reach a limit to how much you can save, which is why earning more money should be another goal. You could ask your boss for a raise, learn new skills to upgrade your career prospects, or take on a side hustle.

No matter which route you take, maintain (or increase) your current savings rate when you earn more money. For example, people with a side hustle bring in about $8,000 a year, on average. If your savings rate is 20%, that extra income means an additional $1,600 in savings each year.

3. Don’t just save money—invest it

When saving for far-off goals like retirement, your nest egg should be invested in the stock market. Yes, there will be periods of short-term choppiness in stock prices along the way, but the long-term returns are more attractive than any savings account can offer.

For example, the S&P 500 (the benchmark index for the U.S. stock market) has delivered average returns of nearly 10% in the past 90 years, whereas high-yield savings accounts are paying slightly higher than 2% currently.

Thanks to compound interest (the interest you earn on investment returns), a $500 investment in the S&P 500 could balloon to more than $40,000 in 45 years, compared with a balance of just $1,230 if the money were in a savings account.

4. Stay positive to stay on track

All money decisions come down to a trade-off between saving for tomorrow or spending on today. Rather than seeing savings as a sacrifice, Sabatier focuses on the opportunity—and says people he’s met on his current 41-city book tour also are “incredibly hopeful.”

“It’s really never been easier in history to become a millionaire,” he says. “I’m definitely an extreme example, but there are more and more examples like mine of people choosing to save money to spend on their own terms.”

Check out A Roth 401(k) offers tax advantages. Here’s how it works via Invest in You with CNBC + Acorns.


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