Though $1 million today isn't what it used to be, it's hard to argue the fact that it's a large sum of money, and more than many people will ever see in their lifetime. But surprisingly, most people who have already gotten there agree that having $1 million doesn't exactly make you rich. In fact, only 13% of those with $1 million or more in investable assets consider themselves wealthy, according to recently released data from Ameriprise Financial.
What's funny, of course, is that many people specifically aim for $1 million in savings going into retirement, but in reality, that may not actually be as substantial a nest egg as you'd assume it would be. Many financial experts recommend withdrawing about 4% of your savings annually to ensure that those funds aren't depleted prematurely, and 4% of $1 million is only $40,000 -- far from nothing, but also not enough to travel internationally every other month or spend every night of the week out on the town.
Image source: Getty Images.
If your goal is to save $1 million for retirement, keep in mind that it may not buy you the lifestyle you think it will -- and step up your game accordingly.
Should you aim higher than $1 million?
Retirement costs the average senior $828,000, but that's over an 18-year period. If you end up living a long life, or retiring early, then there's a good chance you'll need more money than that. This especially holds true when you consider that the average healthy 65-year-old couple retiring this year will spend $387,644 on healthcare throughout their golden years, according to HealthView Services, a cost-projection software provider. Furthermore, if you have high (and expensive) hopes for your retirement, you'll need extra savings to uphold that sort of lifestyle.
The good news? If you start saving early on, you can well exceed the $1 million mark. And you don't necessarily need to go to the extreme of maxing out a 401(k) to get there (though doing so is by no means a bad idea, either).
Check out the following table. It shows how your savings could easily surpass $1 million if you give yourself a long enough window and invest wisely:
If You Start Saving $1,000 a Month at Age:
Here's What You'll Have by Age 67 With a 7% Average Annual Return:
Data source: Calculations by author.
Of course, to wind up with savings well in excess of $1 million, you'll need to not only commit to saving a substantial sum each month, but also, you'll need to invest that money in an aggressive fashion. That means loading up on stocks for maximum growth. Historically, the stock market has delivered around a 9% average annual return, so if you go heavy on stocks, you'll likely score a 7% return (if not higher).
Keep in mind, of course, that the above results won't be doable for everyone. Some people can't start setting funds aside for retirement in their early 20s, and many certainly can't part with $1,000 a month (which is still less than maxing out a 401(k), but a lot of money nonetheless). But if you are in a position to save that much (or more) on a monthly basis, and you do so from an early age, there's a good chance your retirement savings will come in much higher than $1 million if you invest your money the right way.
To have $1 million not be considered wealthy may be laughable to some, so remember this: If you manage to amass $1 million, whether in a retirement account or someplace else, consider it a huge accomplishment. Though $1 million can't buy you what it did back in the day, it's still something to be proud of.
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