Financial experts often recommend saving up $1 million for retirement. At the same time, many financial planners also suggest saving anywhere between 10% and 15% of your gross salary.
But how much do you need to earn to comfortably save each month and still end up with enough in retirement?
Below, CNBC calculated the amount you'd need to earn annually in order to save $1 million by 65 by putting 10% of your earnings into investments.
If you start at age 25:
- With a 4% rate of return, you need to earn $101,189 per year and save $843.23 per month.
- With a 6% rate of return, you need to earn $59,957 per year and save $499.64 per month.
- With an 8% rate of return, you need to earn $34,146 per year and save $284.55 per month.
If you start at age 30:
- With a 4% rate of return, you need to earn $130,893 per year and save $1,090.78 per month.
- With a 6% rate of return, you need to earn $83,809 per year and save $698.41 per month.
- With an 8% rate of return, you need to earn $51,967 per year and save $433.06 per month.
If you start at age 40:
- With a 4% rate of return, you need to earn $232,629 per year and save $1,938.57 per month. (exceeds the $19,000 annual limit on 401(k) contributions)
- With a 6% rate of return, you need to earn $172,300 per year and save $1,435.83 per month.
- With an 8% rate of return, you need to earn $125,344 per year and save $1,044.53 per month.
To be sure, these are high salaries. In fact, the median household income in the U.S. is $61,372, according to the most recent data from the St. Louis Federal Reserve.
For further context, the average American's 401(k) plan grew at a compound annual average rate of 14.2% between 2010 and 2016, according to a study of more than 6 million accounts, by the Employee Benefit Research Institute, a nonprofit based in Washington, D.C.
Of course, there's no guarantee of similar growth in the future.
And it's possible to retire on less than $1 million — many Americans live on much less — though experts suggest hitting the $1 million goal in order to have enough for expenses including health care in older age.
Although these numbers can be a helpful tool in figuring out how much you should be earning and saving to enjoy a seven-figure retirement, they don't take into account the many ups and downs you may experience over your lifetime, including periods of unemployment or sudden financial windfalls or losses.
It's also important to consider how pay increases will affect your savings over time. If you consistently put away 10% of your income, the actual amount you contribute each month will grow as your salary rises, which can help you build up your retirement fund more quickly.
Even if you don't earn much now, save what you can and work your way up to 10 or 15%. As your salary rises, increase your retirement contributions as well.
"It's something to work towards over time," Meghan Murphy, a VP at Fidelity, told CNBC Make It.
She recommends aiming to contribute enough to your 401(k) or other employer-sponsored retirement fund to earn any company match, which is essentially free money. Then increase your savings by just 1% a year until you reach 10 or 15%.
To save more, you can also consider putting any windfalls directly into savings, such as bonuses or cash gifts from family members. "That's an opportunity to say, 'I'm going to take this chunk of money, and I'm going to put it in an IRA,' or, 'I'm going to take this bonus, and I'm going to put it in my 401(k),'" Murphy said.
If your company doesn't offer a 401(k) or comparable plan, you can still save for the future. Consider other retirement savings vehicles that offer tax benefits, such as a Roth IRA, traditional IRA and/or a health savings account.
The most important thing is that you start saving and investing as much as you can as early as you can so that you can take advantage of compound interest, which is when any interest earned then accrues interest on itself. No matter the amount you're contributing, the earlier you're able to start socking money away, the bigger the boost the stock market will give you.
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