Ever wonder what it takes to save one million dollars? A lot depends on how soon you get started, how much inflation runs, and how much your savings earn over the years. The later you get started, the more money you have to save each month to hit a one million dollar target. Just how much more? Let’s run the numbers, assuming your goal is to save one million dollars by age 65 and your rate of return is 8%.

At 25 years-old, you’ll need to save $309 a month to be a millionaire by 65. At 25, you probably aren’t thinking much about retirement, and would rather spend that $309 on a new car rather than some forty-year goal of reaching one million dollars. However, if you have the discipline to sock away the money in your company’s 401(k) and a Roth IRA, then chances are you will hit one million dollars.

If you wait just ten years, and at age 35 start saving, you have to save $705 a month to become a millionaire in thirty years. So now you are 35, probably married with a couple kids, two cars and a mortgage payment. Try carving $705 a month out of that budget! By now you are already regretting not starting sooner. It is not too late, by any means, but it will be all uphill from here.

If you wait twenty more years, until you are 45 years-old, you will have to come up with $1,750 a month to hit millionaire status in just twenty years. Ouch! Never too late to get started, but now you move from carving out a little to dedicate to savings to essentially saving the equivalent of a second mortgage payment every month. Those kids are probably in college now, you still have 15 years on the house and you have a little credit card debt to pay off from the vacation you took to celebrate your 20-year anniversary.

Of course, it is worth mentioning that inflation is the silent factor in this discussion. That one million dollars in 20 or 30 years will not be worth nearly as much as it is today, but it will still be a lot of money, so don’t let the discouraging idea of currency deflation keep you from saving. Open up a savings account. Start contributing to your employer’s 401(k) plan. Invest through a Roth IRA in a variety of diversified mutual funds. The bottom line? Get started today!

This post appeared in the Carnival of Best Personal Financial Planning and Personal Investment Articles.

Most people assume to retire you must be a millionaire, literally. As if the magical number of one million guarantees a life of comfort for the rest of your days. Fortunately for the rest of us, that just is not true. There are plenty of people who retire on less than a million dollars, and live quite comfortably. Once you realize becoming a millionaire is not your end goal it makes the idea of an early retirement seem more within reach.

A Quick Look At Millionaires

Who are these millionaires we often read about-the ones that formed this perception that you have to be a millionaire to retire? Well, they come in various forms.

• Accidental millionaires.  These folks happened upon their millions by dumb luck or good fortune. Examples may include someone who won the lottery, or received a massive inheritance from a long-lost uncle, or even managed to cash out stock options while working at the same company for thirty years.
• Frugal Millionaires. This group spends well below their means, and banks the savings for a number of decades amassing a sizable amount of wealth in investment accounts. You wouldn’t know it by looking at them-they drive old cars, live in modest homes and wear everyday clothing.
• Self-employed Millionaires. Occasionally, this group includes those who have built and ran a successful enterprise for many years.  But often they cashed out early on, selling their business to a larger entity and banking the resulting millions.

Those are just a few examples of the various types of millionaires. Don’t want to spend too much time on their characteristics since we’ve already said that becoming a millionaire is not required to retire. Could you get by on $750,000? Many people get by on much less!

The Half-Millionaire

Let us assume that $500,000 is your ultimate savings goal. This is the point where you’d be willing to cash out and live off the interest and dividends. Would it be enough?

Well, you could expect about $20,000 a year from that half-million in interest, assuming a 4% return. If you kept “retirement” expenses down less than $1,600 a month you would be just fine. I know what you are thinking-who can live on $1,600 a month? Lots of people.

Imagine your future semi-retired life with no mortgage, no car payment, no debt of any kind. You have to pay property taxes and insurance on your home and car, and of course the customary expenses like utilities and food. Could you do it on $1,600? If so, you would never need to touch that original $500,000 balance.

If $1,600 sounds a bit to lean for your retirement budget, perhaps you could work part time, or do freelance work to supplement your income. With just a little effort you could easily take your income up to a more palatable $2,500 a month by working a few hours each week.

The point is, to cash out early on your career, you need to manage your own expectations regarding retirement. Not everyone has to become a millionaire to turn in a work badge. Retirement success is a function of reducing expenses (and debt) to a comfortable level and then building enough wealth to generate the income required to live in that same manner for a number of years. It really is that simple.

This post appeared in the Carnival of Pecuniary Delights: Welcome to Canada Edition.

Photo by Enkhtuvshin (Broke my camera )