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The Formula To Having $1 Million For Retirement

MINNEAPOLIS (WCCO) -- We hear the phrase "a million dollars," and for most people, that much money seems unattainable.

There is a formula to having a $1 million in retirement, but it takes planning and investing early.

Planning for your financial future should be a priority, says Brad Johnston, CEO of Johnston Group.

"Be sure that you can earn more than you spend and take some of that money and apply it toward that goal," Johnston said.

Retirement means different things to people these days. It's not always the traditional age 65; some want financial freedom earlier –- while others have to work longer.

So when do you need to start putting money into a 401K, IRA or alternatives, and how much to have a million dollars in retirement?

"Given a balanced portfolio return, which I think would be very achievable, you would need to save about $208 a month to bill toward the goal of a $1 million over a 50-year time frame," Johnston said.

That's with a 6.6-percent rate of return. Saving that much for that long is out of reach for most.

Cash, Money
(credit: CBS)

Keep in mind: the later you start, the more one needs to save each month.

"If we shorten that time frame but we hold the rate of return constant and we go to 40 years, then the amount comes to $419 a month, so that would be through a 401K plan or outside personal savings," he said.

Trim the window to 30 years and it's $876 a month. At 20 years the number jumps to $2,000 a month.

According to the National Institute on Retirement Security, nearly 45 percent of working-age households don't have a retirement account.

The rule of thumb is to save eight times ones' final salary.

Their report found the average home has only $14,500 saved a few years before retirement.

So if that million-dollar goal seems too lofty, Johnston recommends starting small and growing.

"I think most people, if they scrimped and saved they can save maybe $50 a month and then work that up to $60 a month and then get it to $70 or $80. I know there were some big concerts in town, many of those tickets probably went for $100 or $200 a piece. So just take one entertainment ticket and stick it in your savings account," Johnston said.

What's most important is to plan what's right for your family.

"Start with a vision for yourself. What is freedom to you? What would you like to be doing with yourself at some point in your life?" he said. "The key is just making a clear frame work for your own decisions about how you're going to build those resources and spend those resources."

Johnston says technology has made things easier than ever before. You can invest on an app on your phone.

He says it's also taken out the complexity and cost associated with working with a company or broker.

Here are more tips from Johnston:

The Power of Compounding

If you and a friend were golfing and decided to bet $0.10 on the 1st hole, with the goal of doubling that bet each hole. By the 18th hole, you'd be playing for $13,107.

This illustrates for young savers that starting early with small amounts and increasing over time will result in large savings sums down the line

Ways to Save Money

  • For people who work downtown, taking the bus to work instead of driving can save more than $1,500 per year.
  • Driving to work and parking: average cost is $12 per day for gas and parking.
  • Bus to and from work costs $5 per day.
  • Total annual savings for taking bus is $1,540 for the full year.
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