How to save $1 million for retirement

Golden egg

One million dollars. For many people it has long been a benchmark retirement goal.

It won't enable a carefree life of mansions and servants, but if you stash away a million bucks, you could afford to quit your job.

If you follow the 4% rule, you would be able to withdraw at least $40,000 a year during retirement and have your nest egg last for 30 years.

It takes discipline, but banking seven figures by the time you’re a senior citizen is far from impossible.

Follow our 4 smart moves and you’ll have an easier road to that goal.

Smart move 1. Start saving when you're young.

Saving early and often is the best way to increase your chances of banking $1 million.

If you start putting away $366 per month at age 25 and earn a 7% return over time, you’ll have $1 million by the time you’re 65.

If you wait until you’re 30 to start and earn that same return, you’ll have to put away $525 per month.

Putting away $366 per month might seem hard when you’re 25, but there are many 25-year-olds that spend more than that on car notes.

Our saving a million dollars calculator will show you how long it will take to reach your goal based on your monthly savings.

Do what you can. Maybe you can only afford to put away $200 per month now.

That’s better than nothing and will still make things easier later down the line.

It’s important to at least try to save while you’re young because, while your income might rise as you get older, so will your expenses.

It can be easier to save when you’re single and living with a roommate than when you’re married, paying a mortgage and trying to save for college tuition for two children.

Smart move 2. Take some risk while investing.

It doesn’t matter how much you save, you’ll never reach $1 million if you park it in your checking or savings account.

You must invest it and earn a return.

By the time you reach a million bucks, you’ll have contributed only half of it. The other half will have come from capital gains, dividends or other returns.

Earning a return today means you’re going to have to take on a little risk.

With CDs paying barely 1%, you’re not going to earn much there. Bonds and Treasuries aren’t much better either.

Your only reasonable option is the stock market. You can invest a portion of your money in dividend-paying stocks or in bond funds.

Your investment strategy will change over time depending on market conditions. Ideally, you want to find the risk and return equation that is right for you.

Smart move 3. Practice "burst" saving.

Burst saving is basically anything you do to boost your savings beyond what you normally bank every month.

It could be a bonus, an income-tax refund, an inheritance or any kind of sudden infusion of cash. Or you might decide that you’re going to bank your raises and live on your original salary.

Banking a large amount of money can have a significant impact on your drive toward $1 million, because it gives you leverage to earn more on your investments.

If you're typically saving $200 and suddenly inherit $10,000, it could be a massive boost toward reaching that goal.

It would normally take more than four years to save that much.

Consider that if you invested a $10,000 cash infusion and it grew at 7% over 30 years, its future value would be more than $76,000.

That’s the way you have to think of it.

If you used that $10,000 toward a down payment on a new $35,000 car, that car would be worth less than half its value in five years.

Within a decade, that $10,000 would be worth nothing.

Even if you only bank half of that, you’re still putting yourself years ahead of where you would be.

You can do the same with raises. If you get a raise at work and start bringing home an extra $100 a week, that’s an extra $5,200 per year you could put away.

If you can learn to maintain your standard of living and save your raises instead of spending them, you can seriously boost your saving power.

Smart move 4. Pay down high-cost debt.

It might seem counterintuitive to stop saving money in order to reach your $1 million goal.

But if you’re paying a $5,000 credit card balance at 22% APR, you’re throwing away more than $1,000 per year in interest.

It might actually be beneficial to stop saving for a little bit to pay down that debt.

Because no matter what you invest in, you’re highly unlikely to beat that 22%.

And if you’re saving $200 per month and earning 5%, you’re still losing 17% by carrying that debt.

The sooner you pay it off, the less you’ll be losing in interest.

The additional advantage of paying down debt is that it is a guaranteed return. The 6% you might make in the stock market is not a guarantee. In fact, you might even lose money.

But when you pay down debt, you know exactly how much you’re saving in interest.

Finally, remember that saving such a large amount is a decades-long journey.

It is said that the first $100,000 is the hardest to save. Remember that as your savings grow, so too does the money you’ll earn off of it.

When you earn 6% on your $10,000, that’s only $600. But when you earn 6% on your $400,000, that’s $24,000.

It adds up over time, underlining why you need to save when you’re young.