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MoneyWatch: Managing Your Money
By Ben Geier
Edited By Angelica Leicht
/ CBS News
For many people, saving $1 million for the future is the ultimate savings goal. Even if it's mostly psychological, the power of being able to say you are a millionaire is a real boon for many people. That said, getting to $1 million isn't easy. It requires careful planning, smart investments and a little bit of luck.
No matter what you do, there is no guarantee you'll have $1 million saved by the time you hit 50 — or ever. There are a number of steps you can take, though, that will make it much more likely that you are ready to take on retirement when the time comes.
Get started with a high-yield savings account right now.
How to save $1 million by the time you turn 50
If you're looking to stash away $1 million by the time you enter your sixth decade, there are a number of things you can do to make that more likely. Here are some of your options.
Use a high-yield savings account
While some of your money will be invested in the market (more on that below), a good amount of your cash will need to be kept safe in a savings account. The big problem is that most savings accounts offered by traditional banks have fairly low interest rates. Luckily, you can typically get significantly higher interest rates with a high-yield savings account.
The key is to make sure you make regular deposits. To keep yourself from forgetting, consider setting up automatic deposits — and make sure you increase them as your salary increases. It's also important to not touch this money unless you absolutely must. It can be thought of as an emergency fund, but it's important to remember the primary purpose of savings is to get ready for the future.
Look for a high-yield savings account here.
Save with a tax-advantaged retirement account
One of your best tools in the quest for a million-dollar retirement is a tax-advantaged retirement account. You can use a workplace plan like a 401(k) if your company offers one. If not, consider an individual retirement account (IRA). With both of these options, you put money into the account before it is taxed and invest it. It grows, tax-free, until retirement, at which point you take dispersals.
"Save as much as you can to whatever qualified retirement plan that you're a part of," says Erik Nero, a certified financial planner and the co-founder of First Step Wealth Planning.
The tax-free part is what makes this such an important part of your retirement plan. You are able to avoid giving some of your money to Uncle Sam and instead put it to work growing for your future.
Make smart investments
Whether you're investing in a tax-advantaged retirement plan or doing it in a separate brokerage account, the most important thing is making smart investments that balance risk and security. Invest mostly in stocks early in your life, when you can afford to take risks and wait out any market downturns. As you get older, you'll want to shift more of your money into bonds and other less risky investments.
Also, make sure you diversify your portfolio. An easy way to do this is through index funds, which invest across an index like the S&P 500. Rather than betting on any single company, you'll track the market and get the benefit of long-term market growth.
"You can't predict or know the future, so picking stocks to a large degree is a fool's errand," said Nero.
Use certificates of deposit
A certificate of deposit is a savings product offered by many banks. You agree to put money in the bank for a predetermined amount of time, generally between three tosix months and five years. In exchange, the bank pays you a guaranteed rate ofinterestthat is typically higher than what is offered by a savings account. CDs can be very useful for retirement savings, but make sure you won't need to access the funds during the contract — as early withdrawals generally come with hefty fines.
Start shopping for CDs online now.
The bottom line
With careful planning and smart choices, you can end up saving at least $1 million by the time you reach age 50. You need to save judiciously and make smart investment decisions, but if you take the time you can absolutely be set up for a strong retirement.
Ben Geier
Ben Geier is a personal finance writer based in Brooklyn, New York.
