If you start saving around $400 a month in your 20s, you'll likely be able to retire at age 67 with $1 million in the bank.
But what if you'd rather reach that seven-figure milestone — and become financially independent — much sooner?
CNBC calculated how much you need to save and invest each month in order to have $1 million, the amount experts typically recommend saving for retirement, in 20 years.
Here's what it takes:
- If you earn a 4% rate of return: $2,717
- If you earn a 6% rate of return: $2,153
- If you earn an 8% rate of return: $1,686
These calculations don't account for the many variables that can affect your wealth over several decades, including windfalls, emergencies and rises or dips in the market. But it can give you a good idea as to whether you're on track to retire early.
However, unless you're planning to save more than 15% of your annual income, you'll need to earn a significant salary to achieve this goal. Here's how much you'd need to bring in if you want to reach $1 million in 20 years by saving 15% or less of your salary.
- Annual salary needed if you save 10% of your income: $326,089
- Annual salary needed if you save 15% of your income: $217,393
- Annual salary needed if you save 10% of your income: $258,425
- Annual salary needed if you save 15% of your income: $172,283
- Annual salary needed if you save 10% of your income: $202,379
- Annual salary needed if you save 15% of your income: $134,919
Still, it's important to keep in mind that not everyone's retirement goals are the same and even $1 million doesn't stretch as far as it used to. It's also worth noting that you'll be hit with a penalty and taxes if you withdraw funds from your 401(k) or traditional IRA before age 59 1/2. (There's no penalty on a Roth IRA, but you will face a tax bill.) So if you're looking to retire early, you'll need to explore other investment options.
To determine how much they actually need to maintain financial independence, many early retirees use the "4% rule," which says that if you can safely withdraw 4% a year from your retirement savings portfolio, you have enough in the bank to quit your job. So if you plan to live on $50,000 a year, you'll want to have $1.25 million when you retire. And to be safe, some experts recommend using a lower withdrawal rate.
Once you have an idea of how much you'll need in retirement, another way to figure out how close you are to financial freedom is to calculate your savings rate, which is the percentage of your disposable income that you put away for the future.
Your savings rate can be determined using a simple equation: Divide the amount you saved last year by your gross income. If you earned a pre-tax salary of $50,000 and were able to contribute $5,000 to a retirement account, your savings rate is 0.1, or 10%.
If you're vying to join the early retirees' club but aren't on track to make it happen yet, take some inspiration from people who have already done it:
- This couple who retired in their 30s with over $1 million are living their best lives
- 34-year-old self-made millionaire: If you make $70,000, you could retire in 10 years—here's how
- How one man dug himself out of $70,000 worth of debt to become a millionaire at 35
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