Building a $1 million nest egg may seem an impossible feat.
However, amassing such retirement wealth is within reach for almost anyone — provided they take certain steps, financial advisors say.
“You might think that, ‘Well, I have to become a Silicon Valley entrepreneur to become rich,’” said Brad Klontz, a financial psychologist and certified financial planner.
In fact, you can be a fast-food worker your whole life and amass wealth, said Klontz, a member of the Financial Advisor Council and the Global Financial Wellness Advisory Board.
The calculus is simple, he said.
Every time you’re paid a dollar, save and invest a percentage toward your “financial freedom,” Klontz said.
With this mindset, “you can work almost any job and retire a millionaire,” he said.
It’s not necessarily a ‘Herculean task’
Saving $1 million may sound like a “Herculean task” but it “might not be as hard as you think,” Karen Wallace, a CFP and former director of investor education at Morningstar, wrote in 2021.
The key is to start saving early, perhaps in a 401(k) plan, individual retirement account or taxable brokerage account, experts said. This allows investors to harness the magic of compound interest over decades. In other words, you “let your investments do as much heavy lifting as possible,” Wallace wrote.
About 79% of American millionaires say their net worth was “self-made,” according to a Northwestern Mutual poll published in September. Just 11% said they inherited their wealth, while 6% got it from a windfall event like winning the lottery, according to the survey of 4,588 U.S. adults, fielded from Jan. 3 to Jan. 17, 2024.
More from Personal Finance:
IRS: There’s a key deadline approaching for RMDs
Egg prices may soon ‘flirt with record highs’
Federal Reserve is likely to cut interest rates next week
There were 544,000 Americans with 401(k) balances of more than $1 million as of Sept. 30, according to Fidelity Investments, which is the largest administrator of workplace retirement plans. There were also more than 418,000 IRA millionaires.
In fact, the number of 401(k) millionaires grew by 9.5%, or 47,000 people, between the second and third quarter of 2024, largely due to stock-market gains.
How to get to $1 million
Winnie Sun, a financial advisor, provides an example of the math that links $1 million of wealth with consistent saving.
Let’s say a 30-year-old makes $60,000 a year after tax. If they were to save $500 a month — or, 10% of their annual income — they’d have $1 million by age 70, assuming average market returns of 7%, she said.
This doesn’t account for financial factors that might boost savings over that period, like a company 401(k) match, bonuses or raises.
“In 40 years, you’ll have over $1 million, and that’s doing nothing else but $500 a month,” said Sun, co-founder of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Financial Advisor Council.
It’s also important to avoid debt, which is probably the “biggest cavity” for building savings, and try not to increase expenses too much, Sun explained.
Timing is more important than being perfect, Sun said.
She recommends starting with a low-cost index fund — like one tracking the S&P 500, which diversifies savings across the largest publicly traded U.S. companies — and building from there.
“Even waiting a year can make a dramatic difference in reaching that $1 million point,” Sun said. “Stop and take action.”