7 Strategies for Growing Your Savings Account to $1 Million

Adjust your contributions and other tips for how to save $1 million.

Strategies for Growing Your Savings Account to $1 Million

Although there is little functional difference between $999,999 and $1 million, the round number of a million dollars is appealing and saving $1 million for retirement is a major milestone. Individuals who save that much money have a substantial nest egg set aside to enjoy their retirement, and $1 million can be a reasonable retirement goal for most people to aspire to. Learn about seven methods that can help anyone striving toward retiring as a millionaire — while also enjoying life along the way.

How to Save a Million Dollars

Saving a million dollars can be a feasible goal, but it might not easy. Reaching the finish line requires perseverance, a commitment to avoiding the temptation of squandering savings on unnecessary expenses and intelligent decision making.

People saving with a goal of reaching $1 million will find the task much easier if they choose investments with higher interest rates and look for opportunities to maximize the tax savings available to them. Use the following strategies to reach your retirement savings goal.

1. Start Saving Early

The first thing most people should do to maximize their chances of reaching $1 million in savings at retirement is start saving early. Financial advisors and planners often advocate that clients start saving for retirement as early as possible to maximize the time their savings have to grow. Even a few years can make a big difference in the amount a person needs to save each year to reach retirement.

Read: 9 Signs You’re Not Saving Enough for Retirement

As the chart below illustrates, someone who plans to retire at age 68 will have a much easier time — that is, less money he has to save each year — if he starts saving at age 18 rather than at age 58. People who are 18 and have a job often don’t make much money. So someone saving at age 18 might need to save a significant portion of his income from a part-time job during college or over the summer.

But at a 7 percent interest rate, a person only needs to save about $2,300 annually if he starts saving at age 18. At an 11 percent interest rate — roughly the average return of the U.S. stock market over the last century — an individual only needs to save $539.86 annually to reach $1 million — again, if he starts at age 18.

Starting at age 28, with 40 years to retirement, increases these numbers somewhat, but not dramatically. For instance, a 28-year-old saving for retirement at a 9 percent interest rate needs to save $2,715.24 per year to reach $1 million at age 68.

Check out the table below to see the amount of savings required each year to reach $1 million at retirement age:

Years Until Retirement
Interest Rate on Savings1020304050

The biggest challenge for most people in putting this tip into practice is actually starting early. Very few 18-year-olds are thinking about retirement, and most 28-year-olds aren’t thinking about retirement planning, either. People who are 58 are thinking about retirement, but by that age, reaching $1 million requires substantially larger savings each year.

2. Adjust IRA Contributions

One of the biggest expenses each year for most people is their taxes. Whether you are rich or poor, Uncle Sam takes a big piece of income from everyone in the form of income taxes, Social Security, Medicare, state taxes, etc. Although it’s difficult to get out of paying taxes completely without breaking the law, there are some things you can do to minimize these taxes.

One of the things you can do is use an individual retirement account. IRAs let individuals deposit after-tax money and then earn interest on that money, tax-free. The money stays in the IRA until the saver is ready to withdraw it at retirement.

Putting money into an IRA is an effective way to avoid having to pay more taxes on savings income. The problem many people have with this rule is that they end up raiding their IRAs early and paying taxes and penalties on the withdrawal. Avoiding the temptation to raid an IRA for money to buy a new TV or go on a vacation goes a long way toward helping ensure a prosperous retirement.

3. Adjust 401k Contributions

One of the most common forms of retirement plans today is the 401k, which is a major employee benefit. Workers who are eligible for a 401k should take advantage of this opportunity to save. A 401k often comes with a double benefit: First, 401k contributions are taken out of an employee’s income before any taxes are deducted. So contributing to a 401k lets individuals save money — without having to pay taxes on that money upfront.

Second, 401ks are often matched by employers. A matched 401k is an outstanding benefit — it’s like getting free money. If an employee agrees to contribute 3 percent of his paycheck to a 401k, many employers will also agree to contribute a matching 3 percent. Although there are limits on how much you can contribute to a 401k, they are not a major issue for most people.

4. Invest in the Stock Market

The single biggest challenge many people face in saving to reach $1 million at retirement is the interest rate they earn on their savings. Interest rates make a huge difference in how fast money grows. To help maximize the return on savings, individuals should consider investing at least a portion of their retirement funds in the stock market, usually though a mutual fund or a broader market exchange-traded fund. Be careful not to take on more risk than you are comfortable with, though.

The stock market has returned 11 percent on average over time compared with only about 3.5 percent for short-term Treasury bills. That interest rate difference has a significant effect on how much a person needs to save annually to reach $1 million.

Read: 10 Signs Your Children Will Have to Take Care of You in Retirement

5. Pay Yourself First

Individuals looking to have $1 million for retirement often start with good intentions of saving but find that all of their money is gone at the end of every month, with nothing left for savings.

To minimize this problem, savers should pay themselves first. Doing this means taking funds out of your paycheck and moving them to savings accounts first before paying other expenses. That’s not always easy to do, but with discipline, it can make a big difference in helping ensure you save enough.

6. Avoid Racking Up Debt

A common pitfall many people succumb to is racking up debt. Nothing puts a damper on savings plans faster than taking on debt, especially if it is high-interest credit card debt, which is often compounded monthly at 24 percent per year.

To meet your savings goals, avoid taking on debt that you can’t pay off very quickly. The only exception to this is a mortgage on a house. A house can be a profitable investment.

7. Don’t Live Above Your Means

Finally, perhaps the ultimate key in meeting your savings goal of reaching $1 million at retirement is to not live above your means. Some people with large incomes spend nearly all of it on fancy cars, vacations and expensive clothes. Then at retirement age, they find themselves financially limited — and their lifestyle and health suffers as a result.

Try to avoid spending more than 80 to 90 percent of your overall income, leaving at least 10 to 20 percent for savings and investments. If you avoid living above your means for the long term, then a million-dollar retirement goal should be feasible.

Related: 35 Retirement Planning Mistakes People Make


  • Tahnya Kristina

    Love this post. Great savings strategies, even if people implement 4 out of the 7 they will be well on their way to building their savings account. I am going to share this post next Friday on our Dinks Finance weekly roundup. Have a great weeken.d

    • Casey

      Thank you! 🙂

  • jeff

    Isn’t wise to take care of high interest loans, ie credit cards, immediately, even before saving money away?

    • Casey

      If you’re trying to save up a million dollars, absolutely! Many finance experts recommend saving up a smaller emergency fund before tacking debt (to prevent further debt should an unexpected expense pop up), but reaching major savings goals is near impossible if you’re losing money to interest charges every month.

      • Chris

        I think Jeff is pointing out that tip #1 (paying yourself first before paying bills) likely is not the soundest approach to saving a nest egg. This, and tip #4, are absurd suggestions. The other information is good.

  • Ron

    I did the same thing with the 7. Started when I was 35 retired at 60
    with a new car new house in Florida and !.8 million O it is wonderful. Ron

  • Chris

    The $500 plan is horribly inaccurate. Casey Bond – I recommend checking your “facts” before you post them. It’s simple math. $500/mo for 12 months = $6,000 the first year. $600/mo for 12 months = $7,200 the second year. Keep going to year 20 and you’ll be investing $2,400/month, or $28,800 in year 20. Cumulative total after 20 years? $348,000, or roughly a third of the promised amount ($1,00,000) after 20 years.

    This error is particularly appalling considering that you start your article with a discussion of how much you have to save each month with a given rate of interest over a given amount of time! Per that table (and very basic math), it would take over $4,100/month (with 0% interest) to reach $1,000,000 in 20 years.

    This means you must be assuming a large interest rate to reach $1,000,000 in 20 years, but none is stated. A 10% interest rate (which is reasonable given historic stock prices but not those over the past 10 years) would bring the 20-year savings up to ~$800,000 using the “$500 plan.”

    When trying to be helpful and educate the masses, please get your facts straight.

    • Chris

      Also, it’s clear we can’t trust the published date. As of today (8 June 2015),it says the published date is 8 December 2014 (exactly six months ago). However, there’s a comment on this article that is shown as being posted two years ago!

  • Neeraj Agnihotri

    Hello experts,
    I am a software engineer, I am new to my job and my age is 25. My earning is $8000/month and expenses are around $2000/month . I have no idea about investment but this article rises me for the same. I would love to take your suggestions how I should go to reach $1million at the age 50/ 55 . you can consider my growth 7 to 10% per annum.

    • Shari Mae

      Have you talked to an advisor?

  • Dinka Chika

    “Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful … that’s what matters to me.”
    Steve jobs – Quote