Between the rising cost of big-ticket items like college and housing, and your shorter- and longer-term savings goals, putting enough money away to retire in your 60s can seem daunting — and saving enough to retire even earlier than that might sound impossible.
Research from the Stanford Center on Longevity makes clear that the typical American would benefit from a later retirement age: After analyzing 292 different retirement income strategies, the Stanford research team concluded that the best one for most people would involve working until age 70 in order to delay Social Security benefits. Money expert Suze Orman agrees and has even suggested that "70 is the new retirement age."
But David Bach, wealth manager and bestselling author of "The Latte Factor," doesn't want you to plan on working longer because "you might not be able to and you might not want to." Instead, he says, "let's cram money into our retirement accounts in our 20s, in our 30s and in our 40s so that you have the option to retire in your 50s."
It's even possible to retire with more than $1 million in 20 years, says Bach. It'll take a lot of discipline and a high savings rate, but it's doable: "I call it the 50-20 formula: $50 a day for 20 years at a 10% rate of return is over $1 million." If you save for 30 years, based on that formula, you'd have about $3.39 million, he says.
Don't get caught up on the rate of return, he adds. If you want to use a more conservative rate of return, like 6% or 7%, run your own numbers using a compound interest calculator.
Focus on the big picture, though: The sooner you can start putting your money to work, the more you'll benefit from compound interest and the less you'll have to save to reach your retirement goals.
Setting aside $50 a day is a lot, Bach admits. It's about $1,500 a month, which is more than most people are saving and may be able to save. But if you want to retire on the early side, you need to keep a large chunk of your paycheck. After all, most early retirees have managed to settle down at a young age because they focused on banking at least 50% of their income.
To be clear, just saving a lot of money doesn't always get you rich or enable early retirement. "You have to have this money invested for growth," Bach says. "You cannot put this money in a money market or a CD, where it grows at 1% or 2%. You'll never build wealth" that way.
Bach recommends putting your money to work in a 401(k) plan if your employer offers one or an individual retirement account (IRA). If you do save and invest enough to retire ahead of schedule, keep in mind that these accounts have early withdrawal penalties: Typically, if you take the money out before age 59½ you'll owe a 10% penalty.
There are exceptions, though: For IRAs, for example, you can make penalty-free withdrawals under an IRS clause called Rule 72(t). The rule requires you to take "substantially equal periodic payments" and you must continue to take the required distribution for the longer of five years, or until you reach age 59½.
Consider other investment vehicles, too. "For someone who wants a little more flexibility or is thinking about retiring early, it might make sense to save money outside of these retirement accounts, in a normal investment account," certified financial planner Nick Holeman tells CNBC Make It. "You don't get as many tax benefits, but you have a lot more flexibility: There's no age restrictions on pulling the money out and there's no contribution limit."
Bach's "50-20 formula" results in a $1 million nest egg. You may need more or less depending on what you want your future to look like.
"It comes down to: What do you spend?" he says. "How active are you going to be in retirement? Are you going to travel a lot? Are you going to stay in one place? Are you giving money to grandchildren?"
To help you figure out the right amount to fund your golden years, try using a retirement calculator. Most importantly, though, don't wait to start saving for your future.
If you need inspiration to kick-start your savings goals, check out:
- How to save for retirement without going broke
- New study says save at least 11% of your income for retirement—here are 5 ways to do that
- Everything you need to know about 401(k)'s, IRAs and other retirement savings accounts
Like this story? Subscribe to CNBC Make It on YouTube!
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.