Money Management

Is a $1 million retirement savings goal your best bet? Read on to find out. 

It’s important to consistently sock money away for retirement throughout your career, whether in an IRA account, a 401(k) plan, or a combination of both. You could even save and invest for retirement in a taxable brokerage account if you want the most flexibility and are willing to forgo some tax breaks.

But a big question a lot of people find themselves asking is just how much do they have to save. And often, you’ll hear that the answer is $1 million.

A big reason so many people are drawn to that $1 million savings goal is because it’s a nice, clean number, and also, a rather large one. And in a recent Natixis survey, respondents said they plan to live in retirement for an average of 23 years and need about $1 million to pull retirement off.

But should your goal be to amass a $1 million nest egg? Or is there a different number you should settle on?

It’s all about assessing your personal needs

There’s a reason financial advisors and experts don’t tend to put out blanket advice when it comes to retirement savings. We’re all different people, and we have all our own specific needs and goals. That’s why it’s more important to focus on those than a random $1 million target.

For some people, having a $1 million nest egg could mean retiring with extra money they don’t even need to spend. For other people, a $1 million savings balance could mean having to sacrifice certain retirement goals.

But the reality is that it shouldn’t matter to you how well other people will fare with a $1 million nest egg. It should only matter how well you’ll do. And once you take the time to decide what you want your retirement to look like, it’ll help you determine what savings goal to target — whether it’s $1 million or a completely different figure.

Start mapping out your retirement plans

If you’re in your 20s, 30s, or even 40s, it may be difficult to figure out what you want your retirement to encompass. But it’ll help to at least get the ball rolling.

Some of the questions it pays to ask yourself are:

Do I see myself working in retirement? If so, whether for financial reasons or social ones, you may not need as robust a nest egg.Where do I see myself living as a retiree? If your goal is to retire in a major city where housing and living costs are expensive, it stands to reason you’ll need a decent chunk of savings. If you think you’ll be happy retiring on a small farm in a rural area, you might need a lot less money to pull that off.What do I want to do with my days? Some people put off travel during their working years and hope to do a lot of it in retirement. That can be an expensive hobby. On the other hand, if you got your fill of travel and think you’ll be happy pursuing hobbies close to home in retirement, then you may not need to bank as much money for your senior years.

All told, a $1 million savings balance might serve you quite well in retirement. But don’t assume you’re doomed if you don’t manage to save that much. And also, don’t assume you’re all set if you do save that much. Instead, think about your needs and goals and the amount of money it’s likely to take to address them.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Having emergency savings is essential. Read on for tips to boost your cash reserves at a time when living costs are so high. 

If you’re feeling financially stressed these days, you’re not alone. Although the unemployment rate remains low, layoffs have been all over the news since the start of the year. Throw in persistent recession warnings and rampant inflation, and it’s easy to see how money-related concerns could be wreaking havoc on your mental health.

A good way to ease some of those concerns, however, is to build up your emergency fund. Ideally, you should aim to have enough money in your savings account to cover at least three full months of essential expenses. And for even more financial protection, you’re better off aiming for six to 12 months’ worth of bills in savings. That way, if you were to lose your job, you’d have a means of paying your bills without having to resort to credit card debt.

In a recent New York Life survey, 34% of respondents said that building an emergency fund is a big priority of theirs this year. But at a time when living costs are up due to inflation, boosting your savings is easier said than done. After all, how are you supposed to pad your emergency fund when a week’s worth of groceries now costs $20 more than it did last year?

It’s true that saving money is not an easy thing to do right now. But if you take these steps, you may find that you’re slowly but surely able to build your emergency fund up.

1. Cut some spending

You may be living pretty frugally due to inflation and wanting to conserve funds. But if you examine your credit card bills closely, you might find a few expenses you’ve been spending money on needlessly.

If you can cut even one or two of those, that’s more money you can put into savings. And yes, those cuts can be as small as skipping store-bought coffee once a week, or canceling a $15 streaming service.

2. Get a second job

Maybe you got a raise at the start of 2023, but it’s not doing much for your finances. If saving money seems impossible based on your current paycheck, then your best bet may be to pick up a second job.

Now, this doesn’t mean you have to commit to a job that has you working an additional 20 hours a week. After all, you deserve to have time for things like household chores, self-care, and, oh yeah, sleep.

But because the gig economy is so flexible, you might manage to find a side job that only has you putting in a couple of hours a week. And even if it only earns you a small amount of money, every little bit helps.

3. Put the savings process on autopilot

The less money you see in your checking account, the less you’re likely to spend. If you want to grow your emergency fund, arrange for a portion of each paycheck to move out of your checking account and into your savings account once that money arrives. That way, you’ll remove the temptation to spend it, since it won’t be available to you.

Of course, you could technically dip into your savings account to buy something like concert tickets if you really wanted to. But chances are, you’ll have a harder time raiding what’s supposed to be your emergency fund for that purpose than dipping into your checking account.

Building or growing an emergency fund isn’t easy these days. But it can be done. And the more you’re able to save, the more secure you might feel at a time when things seem iffy.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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For many people, becoming a millionaire is one of their main financial goals. Learn why having $1 million to your name no longer means what it used to. 

Being a millionaire is a popular goal, and for many years, the term has been synonymous with being wealthy. After all, $1 million is a lot of money. If you have that much, it’s assumed that you’re doing very well.

That was true in the past, but not as much any more. While that much money provides financial security, it doesn’t have the buying power that it used to. Some studies have even predicted that $1 million won’t be enough for younger generations to retire on.

We’re all aware of inflation, especially after the sky-high inflation we endured in 2022. It makes just about everything more expensive (except for Costco’s hot dog and soda combo, which will seemingly be $1.50 forever). And it’s gradually making the word “millionaire” mean a whole lot less.

The declining value of $1 million

The most common definition of a millionaire is someone with a net worth of at least $1 million. What not everyone realizes is just how much buying power has changed over time. To illustrate that, let’s look at the amount of buying power $1 million in today’s money would have had in year’s past, based on the CPI Inflation Calculator from the U.S. Bureau of Labor Statistics.

If you had $1 million as of March 2023 (the most recent month with data available), that would be equal to:

$854,672.74 in 2020$717,896.47 in 2010$559,244.09 in 2000$422,083.52 in 1990$257,755.87 in 1980

Here’s another way to look at it — if you had $1 million in 1980, that’s the equivalent of having $3.88 million in 2023.

To clarify, having $1 million is still a big deal. It’s a great goal if you’re not there yet, and an achievement to be proud of if you are. It’s certainly not common, either, as recent research shows that only about 2% of U.S. adults are millionaires. That being said, it isn’t the same signifier of wealth that it used to be.

What this means for your financial planning

The value of $1 million over the years is more than just a fun fact to share with your friends. It’s a perfect example of why you need to account for inflation in your retirement planning. One of the common mistakes people make is that they base their financial needs in 20 or 30 years on how much their money is worth today.

Let’s say that you’re figuring out how much you’ll need to save for retirement. A popular rule of thumb is the 4% rule, which says that you can safely withdraw up to 4% of your nest egg per year in retirement. If that money is invested well, the average annual gains should make up for your withdrawals, allowing your account to sustain itself. There is some debate about whether this rule is correct, but it’s an easy way to get an idea of how much retirement savings you need.

Based on that rule, a savings of $1 million could potentially sustain up to $40,000 per year in withdrawals. If that’s about what you spend right now, you might assume you can set $1 million as your savings target.

But if you’re planning for retirement decades down the road, $40,000 per year is going to be worth a whole lot less. It could be like having $20,000 per year in today’s money.

Here’s what to do instead so that you can be on track with your retirement savings:

Think about what your financial needs will be when you retire. While there’s no way of predicting how much inflation will be, the Federal Reserve aims for a rate of 2% per year. At that rate, prices will double every 35 years. So, if you plan to retire in 35 years, it’s reasonable to assume your money will be worth half as much.Invest in the stock market. The stock market has an average annual return of about 10% per year, so investing in stocks is one of the best ways to beat inflation.Use tax-advantaged retirement accounts. If you work for an employer, see if you can contribute a portion of each paycheck to a 401(k). Also, consider opening an individual retirement account (IRA) to save more on taxes.Save at least 10% of your income for retirement. Saving 10% of your income for retirement is a reasonable minimum. If you can afford it, aim for 15% to 20% to have more financial security.

Last but not least, remember that it’s better to err on the side of caution with your retirement savings. That might mean you need to set aside more of your income for your retirement accounts for now. Having more money than you need is better than having less.

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Going to college this fall? Read on for some key moves to check off your list. 

Going off to college for the first time is an exciting milestone. After all, you’re leaving the nest (albeit temporarily) and are finally going to get to live on your own (well, more likely in a packed dorm, but it isn’t your parents’ house, so there’s that).

But it’s important to make sure you’re financially prepared to go to college. And with that in mind, here are a few key moves you’ll want to tackle this summer.

1. Set up a budget

You may have plans to hold down a job while attending college. Or maybe your parents will be giving you a specific allowance. Either way, do your best to estimate or understand how much money you’ll have available to spend each week or month, and then figure out a budget that allows you to cover your needs.

Let’s say your parents are paying for your dorm and meal plan, but you’ll need extra money for things like your cellphone, personal care items, dorm supplies, and leisure. If your parents are willing to transfer $200 a month into your bank account and your cell phone costs $90, you know you’ll have $110 to spend on your remaining expenses. A budgeting app might help you keep track of those expenses.

2. Apply for a credit card or get added as an authorized user on one

You generally need to be 18 years old to apply for a credit card. Some people, however, go off to college at a younger age.

If you’re not old enough to get your own credit card, or if you’re not approved for a credit card of your own (which might easily happen if you don’t have any sort of credit history), then you should talk to your parents about getting added as an authorized user on one of their cards. It’s important to have a credit card to fall back for true emergencies, such as if you end up in the hospital with an illness or injury and need to pay for treatment.

Of course, if you’re going to get added to your parents’ credit card account, they’ll probably want to set ground rules. They may tell you that you can only use their card for true emergencies. And even then, they might ask you to let them know before you use it. Make sure to follow those rules so you don’t upend your parents’ finances and lose that privilege.

3. Boost your savings

Just as you may want a credit card to fall back on when you head off to college, so too will you appreciate having savings. If you’re working this summer, stick a large chunk of your earnings into your savings account so you have money to tap when you need it.

You might also want the flexibility to spend money on leisure and entertainment while you’re away at college. Having savings allows you to do that without incurring debt.

You may be growing increasingly excited by the day about leaving for college. But take some time this summer to check these important financial moves off your list before you depart.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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