5 Strategies on How to Save $1 Million for Retirement From a $90k Salary

By Chika


Last Updated: June 28, 2022


For many Americans, retirement meant spending their golden years with family and surviving on Social Security, which they'd paid into for so long.

Nonetheless, recent studies suggest that an increasing number of middle-aged and older Americans anticipate working at least part of their retirement. Nearly one-third of Americans over 40 said they would continue working part-time after retiring from their career.

According to a survey carried out by Morning Consult, 50% of adults between 18 and 34 are not saving for retirement at all, compared to 42% of adults aged 35 to 44, and 40% aged 45 to 64.

Many people wait till they are in their mid-life before they start saving for retirement. Many do not give it due consideration until much later. This inadvertently short-changes their financial future. With the cost of living rising, many people may not be able to afford the retirement of their dreams. 

As the workplace landscape continues to evolve, Americans are going to need to assess what their retirement trajectory may actually look like and plan accordingly.



Can you save $1 Million from $90,000?

Saving a million dollars from a $90,000 salary may feel daunting.

But with dedication and focus, you can get there. Most financial advisors advise that you save 10-15% of your income, but if you want to be a millionaire at the time you retire, you have to go above the baseline to achieve it. 

These calculations are based on a 6% annual return on your investments. It doesn't account for salary increases, inflation, or any other financial curve balls.


Age 25

Starting to invest at this age gives you an edge.

You only need to invest 7% of your income - $502 monthly to retire with $1 million at the age of 65. 

Age 30

At this age, you need to save 9% of your income ( $702 monthly) to hit the million-dollar mark at retirement.

Age 35

At age 35 you need to save almost a thousand dollars monthly or 13% of your annual income to successfully accumulate a million dollars. 

Age 40

At 40 years old, you need to save $1443 per month.

This equates to 19% of your annual salary if you hope to have a million dollars in your retirement savings when you are ready to quit the labor market. 

Age 45

From this age onwards, the tide is coming in fast, but it is still possible to hit the million-dollar mark.

However, you would need to save at least $2164 or 29% of your annual income to meet your target.

Age 50

If you wait till age 50, you would need to put away 46% of your salary each month to meet up.

Considering that you may have to fund your kids' college and other things, getting a million dollars may seem unlikely, but it's doable.



5 Strategies on Hitting $1 Million for Retirement

1. Capture your employer contributions.

Make sure you contribute enough to your 401(k) plan to be eligible for any corporate matching contributions. If you qualify for a 401(k) match, you may save a bit less and still reach $1 million by retirement.

A worker may save $1 million by the age of 65 by putting in as little as $3,330 per year starting at the age of 25 and receiving a $1,500 yearly match. A worker who starts saving at 35 and receives the same match would need to save $8,705 each year to attain $1 million by retirement.


2. Avoid funds with high costs.

Over time, investment fees reduce the growth of your retirement and investment accounts. Your investments will increase quickly if you keep the charges taken from your returns as low as possible. 

If you save for 40 years between the ages of 25 and 65, but a 1% annual charge reduces your returns from 7% to 6%, you'll need to save $6,260 per year instead of $4,830 per year to retire with $1 million. Be careful you invest in assets with a low expense ratio.


3. Save money on taxes.

Taking advantage of tax benefits for retirement savings might help you increase your money faster. You will save $1,200 on your tax bill if you put $5,000 in a 401(k) and pay a tax rate of 24%.

Traditional retirement plans might be especially beneficial to people who are now subject to a high tax rate. If you make a lot of money and pay a 32% income tax rate, putting $5,000 in a 401(k) might save you $1,600 in taxes.

Your contribution will be tax-free until you withdraw it from the account. If you fall into a lower tax bracket after you retire, you may be able to pay a lower tax rate on your retirement funds.


4. Avoid taxes in retirement.

Because you haven't paid taxes on the money you've saved in a typical 401(k) or IRA you won't be able to spend it all together. Traditional retirement plan distributions are considered income, and you must pay income tax on them in the year you receive them. 

To have a million dollars to spend in retirement, you'll need to save more than $1 million in a traditional retirement plan since each distribution is subject to income tax. You won't have to pay income tax on payouts in retirement if you deposit $1 million into an after-tax Roth IRA.


5. Plan on a modest retirement.

While being a millionaire may appear to be a desirable retirement goal, the money will only give a modest retirement income if spread over several decades.

If you remove 4% of your $1 million in savings each year, your nest egg will generate around $40,000 in yearly retirement income. $1 million in savings plus Social Security income might offer a comfortable retirement lifestyle in some parts of the country, but it might not be enough in high-cost areas.


Key Takeaway on Saving $1 Million for Retirement

Time is an invaluable resource when it comes to investing.

Starting younger enables you to take advantage of compound interest to grow your earnings. It also means that you can invest in less risky assets which reduces the probability of loss of blowing out your account.

So if you are still wondering when you should start saving, the answer is now. 

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