Building a $1 million nest egg may seem like an impossible task, but financial advisors say that achieving such retirement wealth is feasible for almost anyone if they follow certain steps. Brad Klontz, a financial psychologist and certified financial planner, mentioned that becoming rich doesn’t necessarily require being a Silicon Valley entrepreneur. He emphasized that by saving and investing a percentage of every dollar earned towards financial freedom, anyone can accumulate wealth, even if they work in a job like fast-food.
Starting to save early in vehicles like a 401(k) plan, individual retirement account, or taxable brokerage account is crucial, as it allows investors to benefit from compound interest over time. According to a Northwestern Mutual poll, about 79% of American millionaires attribute their wealth to self-made efforts, while only a small percentage inherited or received it through windfall events like winning the lottery.
As of September 30, Fidelity Investments reported that there were over 544,000 Americans with 401(k) balances exceeding $1 million, with the number of 401(k) millionaires increasing due to stock market gains. Financial advisor Winnie Sun illustrated how consistent saving can lead to $1 million in wealth by providing an example of a 30-year-old saving $500 a month, reaching the milestone by age 70 with average market returns.
Sun advised against debt accumulation and excessive spending, emphasizing the importance of timing and starting with low-cost index funds. The 4% rule suggests that a retiree can withdraw about $40,000 annually from a $1 million nest egg, adjusted for inflation. Fidelity recommends saving 10 times one’s annual salary by age 67 for a comfortable retirement, with a savings goal of 15% to 20% of income often cited by financial planners.
The percentage of income to save depends on individual goals, with some aiming for high savings rates to achieve financial independence and early retirement. Klontz highlighted the FIRE movement, where individuals save large portions of their income through frugal living. Sun suggested allocating 20% of expenses to priorities while making concessions on the remaining 80% to strike a balance between saving for the future and enjoying life in the present.
