Personal Finance Retirement Saving

How to Save $1 Million for Retirement on $30,000 a Year

Written by Rebecca Lake

Stashing away $1 million for retirement is a lofty goal and bringing home a fat paycheck can certainly help you get there. If you’re not banking a six-figure income, however, you may have given up on the idea of retiring a millionaire but not so fast.

Building up a seven-figure nest egg when you’re earning a $30,000 salary may seem daunting but it’s doable with the right planning. If you want to add some serious zeroes to your net worth on a smaller income, here are the most important steps you’ll need to take.

1. Consider your timeline
When your goal is saving $1 million, how much time you have to do it is just as important as what you’re putting in the bank. If you’re in your late 20s, for example, you’re going to have a lot longer to build up assets compared to someone who’s in their early 40s. Think about when you want to retire. Knowing what your time frame is directly influences how much you’ll need to set aside.

2. Calculate what you can afford to save
A $30,000 annual salary breaks down to $2,500 a month, which is better than minimum wage but still not a huge payday. Deciding how much of that you can dedicate to retirement savings is the next crucial step in carving a path to $1 million. Again, this is why looking at your time horizon is so significant.

Here’s an example of the difference the age at which you begin saving makes. Let’s say you’re 25 years old and you plan to retire at 65. Your employer offers a 401(k) with a 100% matching contribution of the first 6% you chip in.

In that scenario, you’d need to contribute 11% of your $30,000 salary annually and earn a 7% rate of return. Assuming you start with a zero balance and don’t get any raises, you’d only have to save $275 a month over the course of your career to reach the $1 million mark.

Now, if you were starting at age 35 instead with that same match and rate of return, you’d have to save 29% of your salary to be a millionaire by age 65. To keep pace, your monthly contributions would increase to $725, leaving you much less to live on in the meantime. The lesson here? Getting an early start relieves some of the pressure to save more aggressively.

3. Choose the right savings vehicle
A 401(k) is a great way to save for retirement when you’re earning $30,000 a year, especially if your employer matches part of what you put in. If you don’t have access to a 401(k), however, you’ve got to look elsewhere for a place to invest your hard-earned dollars.

An individual retirement account or IRA is the next logical choice. A traditional IRA allows you to deduct your contributions each year while a Roth offers tax-free growth. Generally, a Roth is going to be the better choice for someone who’s not earning much money. That way, if you end up in a higher income bracket in retirement, you’ve already paid taxes on those funds at a lower rate.

As of 2016, you could chip in $458 a month to an IRA. To put it in perspective, that’s about the same as the average car payment. If you’re thinking of getting a loan to buy a new set of wheels, you should reconsider diverting that money into your retirement accounts and just paying cash for a cheaper car instead.

A Health Savings Account (HSA) is an often overlooked way to pad your retirement savings. If you’ve got a high deductible health insurance plan, check to see if you have an option to save in an HSA. The 2016 contribution limit works out to $279 a month for single coverage and $562 if you have family coverage.

Contributions to an HSA are tax-deductible, even if you don’t itemize. The money is meant to be used for health care expenses but if you stay healthy, you can withdraw the funds penalty-free for any reason once you turn 65. You’d just have to pay regular income tax on what you take out

4. Streamline your budget
If you’re struggling to come up with enough money to save in a 401(k) or max out an IRA, it may be time to buckle down on your budget. Look at what you’re spending each month to see where your biggest money leaks are. I’ve found the easiest way to keep track is to use a free personal budgeting app like Mint or PocketGuard, which links to your bank and credit card accounts.

In some cases, debt may be the stumbling block you’re running into, rather than overspending. If you’ve got student loans or credit cards, getting rid of them is the obvious answer to saving more but it’s easier said than done. To speed the payoff process along, consider refinancing your loans or consolidating your credit cards with a 0% APR balance transfer. When you reduce your interest rate, more of your payments go towards the principal, allowing you to clear the debt faster.

5. Stick to low-fee investments
Investment fees can erode your efforts to save and when you’re only making $30,000 a year, you’ve got to make sure every penny counts. Index funds and exchange-traded funds are ideal when you’re investing on a shoestring. These kinds of funds offer broad exposure to the market without taking a big bite out of your investment returns for fees.

6. Automate your savings
Saving money is a habit and it’s easier to adopt for some people than others. Putting contributions to your retirement accounts on autopilot can take some of the guesswork out of it. When you’ve got money coming out of your paycheck and going into your retirement funds automatically, you don’t have the chance to spend it. That’s something you’ll be glad of down the line once you’re ready to retire.

How are you planning to save for retirement? Tell us below!

About the author

Rebecca Lake

Rebecca Lake is a personal finance writer and blogger specializing in topics related to mortgages, retirement and business credit. Her work has appeared in a variety of outlets around the web, including Smart Asset and Money Crashers. You can find her on Twitter at @seemomwrite or her website,

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