How To Retire With More Than $1 Million

How much money do you need to live on when you retire? While the answer varies depending on whether you plan to live a quiet life in your paid-off house or travel the world and see the sights. Either way, however, you should aim to save about 80% of your preretirement income for each year of your retirement. Let's say you make $100,000 a year and retire 65. If you live until age 85, you'll need about $1.6 million to live comfortably in your golden years. Try these tips to cross the coveted million mark by the time you collect your gold watch.

Pay Off High-Interest Debt

Every dollar you put toward high-interest credit card debt is a dollar that won't be working to earn compound interest for your retirement. The sooner you can pay off high-interest debt, the more money you can put away for your nest egg. If you haven't already, make a detailed budget and allocate all available disposable income to your debt (after reasonable expenses like food and shelter, of course). As you pay off those cards, increase your automatic retirement contributions accordingly.

Never Skip a 401(k) Match

Most people should invest in an employer-sponsored retirement plan as soon as they work for a company that offers this benefit. It's especially important to take part in this perk if your employer offers a match. Many companies will put away the same amount as you set aside from each paycheck. This approach also provides the advantage of lowering your taxable income by deducting your 401(k) contribution before taxes.

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Start Early

If you are looking for your first post-education job, start saving for retirement with your first regular paycheck. After you put money in a 401(k) or individual retirement account (IRA), you can invest these funds in stocks, bonds, mutual funds and other investments. Many financial experts conservatively estimate a return of about 6% per year. With that number in mind, let's look at a basic example that illustrates the power of compound interest:

• You start working at age 25 and invest $1,000 in your employer-sponsored retirement account. 

• Your account earns 6% interest paid at the end of the year for a total balance of $1,060. 

• The following year, instead of earning interest on $2,000 (the first year plus second year contributions), your account will earn interest on $2,060. The total interest for your second year will be $123.60, with a third-year account balance of $3,183.60.

As you can see, compound interest allows your money to grow exponentially over the years.

Catch Up

If you've been working for some time without putting money aside, it's never too late to start saving. You can also try some tricks to accumulate the earnings you need to retire with more than a million dollars. For example, start maxing out your 401(k) contributions. The IRS increases the annual limit for individuals ages 50 and older so you can "catch up" on retirement savings.

Consider Working Longer

If you're healthy and motivated enough to keep working when you hit 65, waiting until 70 to retire has significant financial benefits. For one thing, it gives you five extra years to sock money away in your 401(k). You also boost your Social Security benefits by delaying retirement as long as possible. However, you should also expect the unexpected and save as much as possible in your younger years.

With these techniques, you'll be on your way to reaching a million or more by the time you retire. Calculating the savings potential with your specific numbers is the best way to figure out how to cross the finish line to your financial goal.