3 Ways to Get From $100,000 to $1 Million in Retirement Savings

In Austin Powers: International Man of Mystery, Dr. Evil famously tries to hold the world hostage for a ransom of $1 million. And if you asked most Americans what they'd need to retire comfortably, you might get the very same number -- at least according to TD Ameritrade's 2019 Retirement Pulse Survey.

The survey polled adults aged 23 and older with investable assets of $10,000 or more. Respondents were asked about their progress on retirement savings, their willingness to cut expenses to save more, and whether $1 million would be enough for a comfortable retirement. To the last question, six of 10 respondents across all age groups said yes.

Nearly 90% of those polled also said they'd be willing to make trade-offs today to catch up on their retirement savings. Some of those trade-offs included packing lunch instead of buying it, making coffee at home, and downsizing housing expenses. But are those tweaks enough to ratchet up your savings to seven figures over time? 

The answer depends on how much you've saved so far, and how much time you have between now and retirement. An analysis by Fidelity calculates the average 401(k) balance at $103,700 and the average IRA balance at $107,100. Using $100,000 as a starting point, then, let's look at three scenarios that can take you to $1 million in savings. All three assume a 7% return on your invested funds.

Image Source: Getty Images.

10 years to $1 million

You're in your 50s and you love the idea of retiring in 10 years. But in the past, you haven't focused enough on saving. Now you're wondering if it's even possible to grow your nest egg to $1 million. In truth, saving $900,000 in a single decade is tricky. Since the Internal Revenue Service limits how much you can contribute to your 401(k) and IRA accounts every year, you can't amass this sum with retirement account contributions alone.

The 2019 contribution limits on 401(k)s and IRAs total a combined $25,000, or $32,000 if you're 50 or older. If you make those maximum contributions as monthly deposits of $2,083 for 10 years, your nest egg only grows to $563,604.

Contribution limits will go up over time, so this number is fairly conservative. Even so, to get to $1 million, you'll have to save additional amounts in a taxable brokerage account that doesn't allow for tax-free growth. And you should account for those income taxes in your planning. Assuming 25% in federal, state, and local taxes, you'd have to stash $2,718 monthly in your taxable accounts -- on top of the $2,083 you're saving in your tax-advantaged accounts to achieve the $1 million target in 10 years.

The table below shows your savings breakdown to get from $100,000 to $1 million in savings in 10 years. You'll max out our 401(k) and IRA contributions and then save an additional $2,718 per month in a separate, taxable brokerage account.  

Source: SavingsCalculator.org. All figures are rounded to the nearest dollar.

20 years to $1 million

The 20-year roadmap to $1 million is much cleaner. You can get the job done with 401(k) contributions alone, to the tune of $1,138 monthly.

Notably, when you have 20 years on your side, you only have to save $373,120 in total. The other $600,000-plus comes from the earnings on your investments.

Source: SavingsCalculator.org. All figures are rounded to the nearest dollar.

30 years to $1 million

Finally, retirement looks simple when you have $100,000 and 30 years to save. Believe it or not, you can turn that $100,000 into $1 million by tucking away a measly $154 monthly in your retirement plan. You really could make that happen by packing your work lunch instead of eating out. And since $154 monthly is well within the limits of allowed contributions, that money grows tax-free for decades. As Austin Powers would say, "Yeah, baby."

Source: SavingsCalculator.org. All figures are rounded to the nearest dollar.

Next steps for savers

Realistically, you might not have decades to save or have a $100,000 balance today. The monthly savings targets shown above might also feel out of reach. Even so, the core takeaways from the scenarios above still apply:

1. Don't put off saving. The longer you keep your money invested, the more you earn. Save smaller amounts today if that's all you can handle, and gradually build up your contributions as your income grows.
2. Make sure your 401(k) and IRA contributions are being invested. If you don't pick investment choices in your 401(k), your cash usually gets invested in money market funds by default. A good money market fund earns 2%. And that's not enough to get you to $1 million. Our three scenarios above assume a 7% return. While the stock market can be volatile year to year, 7% is considered by Warren Buffet and other savvy investors as a realistic, inflation-adjusted earnings target for longer-term investing. One year, like 2019, might show growth in the S&P 500 of 25%. That growth offsets other years, like 2008, when the market is down. Inflation averages to about 3% annually. 
3. The tax advantages of your 401(k) and IRA can be significant over time. Max out your contributions in those accounts before stashing any long-term savings elsewhere.
4. Take full advantage of any employer-match contribution available to you and plan on staying with your job until you are fully vested. Your employer contributions count toward your monthly savings goal, which means you don't have to save as much out of your pocket. 

Without the option of cryogenically freezing yourself in the style of Dr. Evil, the path to $1 million might not be clear to you today. But tomorrow is another story because your income is likely to evolve over time. Just keep saving now to give yourself a head start to that $1 million milestone.