Ask Americans why they don’t have money set aside for their future and many will answer that saving for retirement isn’t a priority for them. At least, that’s what 40 percent of respondents in a recent GOBankingRates’ survey said when asked why they didn’t have any retirement savings.
There could be plenty of reasons why saving for retirement isn’t key for them, but a big one might be that many people are prioritizing other expenses — especially if they need to stretch a small paycheck. The median household income in America is $61,372, according to the latest figures from the U.S. Census Bureau. That means half of all household incomes in the country are lower.
So, how do you manage to get by and save for retirement without a big paycheck? If you earn $50,000 or less a year, click through to find out how to retire with $1 million.
Make a Commitment to Save for Retirement
If saving for retirement isn’t a priority for you, consider this: If you’re struggling to get by now on a small paycheck, how will you get by in retirement without savings and no paycheck? You don’t want to retire broke and live on Social Security benefits alone.
“It can certainly be challenging to build up a good-sized nest egg, but it will certainly be impossible if you never try,” said Belinda Rosenblum, a certified public accountant and president of Own Your Money. “It all starts with a commitment.”
To ensure you follow through on your commitment to saving, let your family or friends know about your financial goals, said Polly Scott, communications and deferred compensation plan manager for the Wyoming Retirement System.
“If you talk about it … you’re more likely to do it,” she said.
Know Your Number
You might be asking yourself, “How much do I need to retire? Do I really need to save $1 million?” The answer will vary from person to person.
“One million dollars isn’t the magic number,” Scott said. “In most cases, it doesn’t even have to be close to that number.”
So, the first thing you need to do is calculate how much you need to have to retire and how much you should save each month to reach that goal. There are plenty of free online retirement calculators — such as those at Fidelity, Schwab and Vanguard — that can help.
Once you know how much you need to set aside each month to reach your savings goal, you can create a plan to make it happen.
“Even if you don’t get to $1 million and you only get to $100,000, at least you’re not retiring on just Social Security,” Scott said.
Start Saving as Soon as Possible
The sooner you start saving, the less you’ll have to set aside each month to save $1 million for retirement — which is good news if your income is low.
“If you are age 30 today and invest $600 a month from now to age 65, if your investments earn an average return of 7 percent a year, by age 65 you’ll have $1 million,” said Dana Anspach, founder and CEO of financial planning firm Sensible Money. “If you’re starting at age 40, you’ll need to be able to put away about $1,300 a month to get to $1 million by age 65 — still assuming a 7 percent return.”
If you start saving at age 20, you could set aside less than $300 a month and have $1 million by age 65, assuming a 7 percent annual return. By starting at this younger age, you’d need to save half as much each month as you would have to if you waited until 30 and about one-fourth as much if you waited until 40 to start building a $1 million nest egg.
Find Room in Your Budget to Save
If you’re making less than $50,000 a year, you might be wondering how you can find room in your budget to save several hundred dollars a month.
“First, you have to want financial freedom just as much as you want other things in life,” Anspach said. Focusing on that goal helps you see the payoff from cutting costs from your budget, which can range from finding less-expensive housing to buying things used rather than new, she said.
“Even something as small as giving up soft drinks in favor of water can lead to big savings,” Anspach said. “Suppose you spend an average of $12 a week on soft drinks and tea. That’s $624 a year.”
Rosenblum said you can cut $250 out of your monthly budget easily to put into savings by opting for a lower-cost cable TV package, slashing your grocery bill by planning meals to eliminate food waste, and eating out or getting take-out less often. Resources such as 5 Dollar Dinners can help you make low-cost meals at home, she said.
In reality, “becoming a millionaire is less about how much you make and more about consistency,” said Deacon Hayes, founder of WellKeptWallet.com and author of the forthcoming book, “You Can Retire Early!”
“One way to ensure that you actually invest consistently is by setting up an automatic transfer from your bank to your investing account,” he said. “This way, you can stick to your investing strategy without much thought required each month.”
If your employer offers a workplace retirement plan such as a 401k, you can have contributions automatically deducted from your paycheck. If you were automatically enrolled in your employer’s plan, check your contribution amount to make sure you’re saving enough each month to reach your savings goal. “You need to be contributing a minimum of 10 percent of pay,” Scott said.
If you don’t have access to a workplace retirement plan, you can save for retirement on your own by setting up automatic transfers from your checking account to an individual retirement account, such as a Roth IRA or a solo 401k if you’re self-employed.
“Make [the] commitment to pay yourself first then work your lifestyle around what’s left,” Scott said.
Take Advantage of Matching Contributions From Your Employer
A great way to boost your retirement savings is to find out if your employer will match your contributions to your workplace retirement account. But, typically, you have to save a certain percentage of your income to get the full match.
Twenty-five percent of employees miss out on this free money because they don’t contribute enough to their retirement plan to get their employer’s full matching contribution, according to Financial Engines, an independent investment adviser website.
“If you work for an employer that offers a retirement plan and a company match, be sure to contribute enough to receive the full employer match,” Anspach said. “Many employers match up to 3 percent of your pay. At $50,000 a year of income, that adds up to $1,500 a year of employer-provided funds.”
Read More: Secret Moves to Double Your 401k
Save Your Tax Refund
If you get a big tax refund, you should put that money into retirement savings, Rosenblum said. The average refund for the 2017 filing season was $2,782, according to the IRS. If you earn $50,000 a year, stashing a refund of that size would be equivalent to saving about 6 percent of your income, she said.
Or, you could adjust your tax withholding by filling out a new Form W-4 to put more money back into your paycheck each month rather than get a big refund each spring. Then, use that extra money in your paycheck to boost your automatic contribution to your 401k or workplace retirement account.
Get a Side Gig to Boost Savings
Another way to come up with more cash to retire with $1 million is to get a side gig to boost your income. Both Scott and Rosenblum recommend finding a second job and stashing those earnings into a retirement or investment account.
You could open a Roth IRA and contribute up to $5,500 a year if you’re single and your modified adjusted gross income is less than $118,000 or married with a modified AGI of less than $186,000. The big benefit of this account is that you can withdraw money tax-free in retirement. Withdrawals in retirement from a 401k or traditional IRA are taxed as regular income.
Choose Investments That Offer Growth
To increase your chances of having $1 million in retirement, you need to invest your savings in assets that will grow.
“No one gets rich by saving in the bank,” said Byrke Sestok, a certified financial planner and president of Rightirement Wealth Partners in White Plains, N.Y. “If you have 30 years before retirement and 30 years during retirement, then you have the time to participate heavily or totally in the stock market, and ignore the big drops and focus on the fact that stocks have historically proved to be a better-performing asset class over bonds and cash.”
That doesn’t necessarily mean it’s up to you to pick the right stocks, though. See if your 401k or workplace retirement plan offers index funds, which track the performance of a broad stock market index such as the S&P 500. Or, Scott recommends target-date funds, which have managers who shift your portfolio allocation over time from stocks to more conservative investments as you near retirement age.
Opt for Alternative Investments
If you make less than $50,000 a year, there’s only so much you can afford to set aside in savings each month. So rather than save your way to $1 million, build your net worth through investing in real estate or starting a business, said Todd Tresidder, wealth coach at Financial Mentor.
“Think outside the traditional model — go to alternative assets,” he said.
Don’t assume your lower income limits your ability to pursue either of these alternative assets. You don’t necessarily have to have money to start a business, Tresidder said. You just need an idea, and you have to be willing to put in the hard work to make it happen.
If you want to invest in real estate, Tresidder said you can get a loan for a small, inexpensive property, fix it up on your own and flip it for a small profit. Then you can use that equity to buy your first rental property that will generate a stream of income.
Don’t Tap Retirement Savings Before You Retire
You can cash out a 401k when changing jobs, but that will seriously hurt your chances of saving $1 million for retirement.
“Don’t ever do that,” Scott said. “That is very destructive to your retirement security.”
Not only will you have to pay state and federal income taxes, but also you will have to pay a 10 percent early withdrawal penalty on the money you withdraw. Plus, most people don’t go back and replace what is withdrawn, Scott said. So, they miss out on investment earnings.
To avoid having to tap retirement savings — whether it’s to get you through a period of unemployment or to pay for emergencies — Scott recommends that you build an emergency fund. Set aside cash in a savings account each month so you can access if you’re hit with an unexpected expense.
“You don’t want to be in a situation where you’re in an emergency and raid your retirement account,” she said. “That’s counterproductive.”
If you’re graduating from college this spring, saving for retirement probably isn’t high on your list of priorities. In fact, GOBankingRates found that saving for retirement isn’t a priority for a large number of Americans. It certainly wasn’t at the top of Grant Sabatier’s to-do list when he graduated from the University of Chicago in 2007.
As a philosophy major entering the job market on the brink of the Great Recession, Sabatier was lucky to find work at a call center for an analytics company. The pay was pretty good, too: $42,000 a year. It was certainly enough to cover living expenses and leave him with some cash to stash in a retirement account. But Sabatier didn’t save a dime.
“I spent it all,” he said. “I had an opportunity to save when I was 22, but I didn’t. I tried to live the life.”
But he got a wake-up call two years later. After bouncing from job to job, Sabatier found himself living at home with his parents with just $2.26 in his bank account. He decided to make saving a priority.
Five years later, Sabatier had $1 million in the bank. Today, at age 32, he has about $1.35 million.
Click through to see how you too can save a million dollars for retirement.
Have a Plan
Whether you want to retire early or retire with riches, you need to have a plan in place. You can’t just set aside an arbitrary amount in a retirement account each month and hope it works out.
When he was 24 and living at home, Sabatier decided he wanted to reach financial independence by age 30 — a tall order for someone with just a couple bucks in the bank. To figure out how much he would need to save, he used a retirement calculator.
Sabatier estimated his annual expenses would be $50,000 and found he would need to save 25 times that sum — $1.25 million — in order to live off the interest in retirement. He then calculated that he would need to save $50 a day and earn 5 percent annually to have $1.25 million in 30 years.
However, Sabatier didn’t want to wait that long; he wanted to save the amount he needed in just five years.
“When you get clear on your numbers, what it costs to have the lifestyle you want, you really are in control,” he said.
Take Advantage of Compounding Interest
In his quest to become a millennial millionaire, Sabatier recognized the power of compound interest early on.
“Every blog, every book on personal finance has this requisite compounding interest chapter,” he said. And for good reason. The interest paid on the amount you invest plus the interest that accrues, compound interest enables your wealth to grow faster.
Sabatier said he realized: “Hey, I’m 24; I need to start saving as much as possible now to take advantage of compound interest. I knew I had time on my side.” The longer he waited to get started, the more he would have to set aside each day to reach his savings goal.
For example, if you are 25 and want to save $1 million for retirement by age 65, you need to set aside $172.00 per month and earn 10 percent annually, about the average stock market return over the long term. If you wait until 35 to start saving, you will need to save $461.00 per month with a 10 percent return to have $1 million by age 65.
Sabatier said that every dollar he invested when he started saving in 2010 is worth around $3.25 today. With compounding, your money makes money — and helps you reach your goal sooner.
Look for a Job That Gives You Options
You probably don’t need a calculator or spreadsheet to realize that, even with compound interest, you’d have to invest a lot of money to amass $1 million in just five years. Sabatier said he knew he had to make as much money as possible to invest it.
The first step was to find a job that paid well and offered the potential for growth. Sabatier saw that digital marketing was a growing field, so he spent a month watching free YouTube tutorials on the subject. He used the knowledge he gained to land a job with a digital marketing agency in Chicago, earning $50,000 a year.
Find Ways to Make More Money to Invest
Sabatier took advantage of a 401k plan at work and contributed the maximum. As of 2018, the current maximum amount workers can contribute to a 401k annually is $18,500. Then, he found a way to make more money on the side by creating websites for law firms. While he started off charging $500 per website, within a few months he was billing $50,000 per site. He put 100 percent of his side hustle income into an individual retirement account.
Sabatier now runs his own businesses and a blog, MillennialMoney.com. And he saves 60 percent to 70 percent of his income. He encourages young adults who want to increase their savings to find ways to make more money. Start by asking for a raise from your employer. Then get a side hustle — ideally one that offers more than just the chance to earn extra money.
“You want to build skills instead of just having a job,” he said. Then you can turn those skills into even bigger money-making opportunities like he did.
Make Saving a Daily Goal
Although Sabatier calculated that it would take 30 years for him to amass $1.25 million by saving $50 a day — and he wanted to reach that goal in five years — he didn’t start out saving that much. He began by saving just $5 a day in a Roth IRA with Vanguard by downloading the investment firm’s app and transferring money with a click on his phone (in addition to what he was stashing in the 401k).
It’s okay to start small, Sabatier said, but you should make it a daily habit. “If you save daily for 30 days, it becomes a habit,” he said. “It becomes a part of you.” And if you check your account daily, you’ll see how it’s growing — which will encourage you to save more.
Sabatier recommends putting your money into a tax-advantaged account, such as a Roth IRA, first. Once you max it out, open a brokerage account.
In case you’re wondering how much you’d have to save monthly with a 5 percent annual return to have $1 million in five years, brace yourself: It’s a little more than $15,000.
Increase Your Savings Rate
Once you get in the habit of saving, find ways to increase the daily amount you’re setting aside. As he earned more, Sabatier was able to increase his daily savings to $50, $100, $5,000 and even $20,000 some days. That’s unrealistic for most people. But he said you can save more than $5 a day “if you dig in and look for it. Cancel the Netflix subscription and invest that $15. It will be significantly more valuable.”
Even if you can only afford to contribute to a retirement plan at work, you still should increase the amount you set aside each year.
“If you save 1 percent more of your income each year, you’ll retire two to five years sooner,” Sabatier said.
Keep Investments Simple
If you want your money to grow at a healthy rate, you have to invest it in something other than a savings account. Although you do have to take some risk by investing in the stock market, you shouldn’t let the idea overwhelm you or scare you, Sabatier said.
He took a simple approach and invested about 80 percent of his money in index funds. An index fund tracks the performance of a market index, such as the S&P 500 index. He also bought shares of individual stocks and invested in real estate. But, by and large, Sabatier sticks to a simple investing strategy.
Keep Costs Low to Boost Savings
Keeping expenses low helped Sabatier save such a large amount of money quickly. For example, he lived with three roommates when he had the digital marketing job that paid $50,000. Splitting the rent four ways helped him keep housing costs down.
There are plenty of ways to cut monthly expenses — from slashing food spending to cutting the cable cord. You also can force yourself to reduce your spending by paying yourself first. If you spend first and then save, you’ll always find things to buy and won’t have any money left to save, Sabatier said.
Aim to save at least 20 percent of your income, he said. “If you pay yourself first and invest it, the rest you can blow on what you want,” he said.
View Saving as an Opportunity, Not a Sacrifice
Saving $1 million by age 30 wasn’t easy for Sabatier. He worked more than 90 hours a week. And he put more than half of his income into retirement and brokerage accounts. But he viewed saving as an opportunity, not a sacrifice.
“At the end of the day, when you have more money, you have more opportunities,” he said. That doesn’t mean you have to save $1 million by age 30, as Sabatier did. “You don’t have to be a millionaire. Being a millionaire shouldn’t be the goal. It should be living the life you want to live.”
Focus on Long-Term Success
Knowing your priorities and what you want in life will help you focus on what you’ll achieve by saving rather than what you might have to give up. Now that he’s reached his savings goal, Sabatier can spend more time focusing on others, doing what he enjoys and even writing a book to share what he’s learned.
“If you really focus on it and are intentional and come up with a strategy and every day execute on that strategy, a lot of things can happen,” he said.
Click through to find out how to build a $1 million nest egg.
Dubbed “The Millennial Millionaire” by CNBC, Grant Sabatier went from having $2.26 to over $1 million in five years through side hustling and investing. After reaching financial independence at the age of 30, Sabatier founded Millennial Money, where he writes about investing, personal finance, entrepreneurship and co-hosts the Millennial Money Minutes podcast.
Taylor Bell contributed to the reporting for this article.