U.S. Workers Say They Need $1.26 Million To Retire: How To Get There

How much do you need to retire? A common answer is $1.26 million, according to the Planning and Progress Study 2025 by insurance and financial company Northwestern Mutual.

Unfortunately, knowing your retirement savings target does not guarantee you’ll achieve it. The study also reported that 51% of Americans believe it’s very likely or somewhat likely their savings will run out before they’re gone. So, what’s a saver to do? Let’s outline the exact steps you can take to retire with a seven-figure nest egg.

1. Set Up Retirement Contributions Now

Time is a critical factor in building retirement wealth. The longer you are invested, the greater your wealth opportunity. Since you can’t start investing yesterday, the next best thing is to begin contributing to your retirement fund now.

To start building your nest egg, you need two things: a budget and an account.

How Much To Save

You don’t need to create complicated spreadsheets or analyze your spending to determine your budget for retirement contributions. The simplest and fastest approach is to guess how much you can afford. A guess is good enough to get you in the investing game, which is the main objective if you’re not contributing now.

If your gut says you can’t afford a single dollar, override that hunch. You can probably find a way to carve out $50 or $100 or more from your monthly spending. Here are three ideas:

1. Shop for cheaper insurance rates. Use the money you save to fund your contributions.
2. Switch to a cash-back credit card. Higher rewards can mean bigger retirement contributions.
3. Buy cheaper groceries. A 2023 AARP analysis concludes that Walmart’s grocery prices are more than 20% lower than Stop & Shop, New England’s largest grocery chain. Price dynamics in your area may differ, so do your own price comparisons. Find the cheapest supermarket around and direct the money you save into your retirement account.

To clarify, you will need to save more than $50 monthly to reach your retirement goals, but $50 is better than zero. So start saving whatever you can now. You will revisit and refine your contribution budget later.

Where To Save

You can invest for retirement in any brokerage account, but some account types are better than others. Here are the common options, in order of most to least preferred:

1. Workplace 401(k): The 401(k) has tax advantages that make saving cheaper and allow your wealth to grow faster.
2. IRA: Several financial companies offer low-cost, convenient IRAs, including Charles Schwab, Fidelity, Robinhood and Betterment.
3. Taxable brokerage account: A taxable brokerage account has no tax perks, but no withdrawal restrictions either.

2. Automate Investments

Once you are depositing to your account, make sure the funds get invested automatically. 401(k)s usually operate this way by default, but you may have to configure automated investing for an IRA or brokerage account. Ask your provider about your options.

Choosing your investments can be a challenge if you’re new to investing. You can start with this quick-and-easy portfolio:

1. 60% S&P 500 fund
2. 40% broad market, investment-grade U.S. bond fund

This is known as the 60/40 portfolio. It’s popular because it balances growth potential from S&P 500 stocks with stability from high-quality bonds. You can always adjust the percentages for more or less risk. A higher percentage of the S&P 500 fund provides more risk and more growth potential, and vice versa.

3. Project And Plan

This step kicks off the real work of retirement planning. Know that this process can be discouraging—that’s why it’s helpful to make investing a habit before you crunch the numbers. If you run the numbers first, you might be inclined to give up before you start.

For this step, you’ll need a savings goal calculator, like this one from the SEC. The calculator requires these data points:

1. Savings goal. You can use $1.26 million or any number you are targeting.
2. Initial investment. This is your current investment account balance. It cannot be zero. For this example, assume $500.
3. Years to grow. Subtract your current age from your targeted retirement age. If you are 25 and want to retire at 65, the answer is 40.
4. Estimated interest rate. Here, you will estimate your portfolio’s average annual return after inflation. According to a Vanguard analysis, a 60/40 portfolio averages 7.7% growth. The Federal Reserve Bank of Cleveland projects 10-year expected inflation of 2.34%. The net of these two values is 5.36%.
5. Compounding frequency. Compounding frequency applies more directly to cash savings deposits. Leave this value as annual for a more conservative growth estimate.

According to the calculator, you can save $1.26 million by investing $793.16 monthly at an average, after-inflation return of 5.36% for 40 years. The required monthly contribution will be higher if you have less time, or lower if you expect higher returns.

5. Raise Contributions

Do not panic if you don’t have room in your budget for a $793 monthly retirement contribution. There are ways to invest more than you think you can afford, such as:

• Earning employer-matching contributions in your 401(k). Employer-matching contributions are free deposits you earn by contributing to your retirement. Depending on your plan’s terms and your salary, they could be worth a few hundred dollars monthly.
• Making pretax contributions. 401(k) contributions and some IRA contributions are pretax. They lower your taxable income, which in turn lowers your income taxes. The savings ultimately reduce the cost of your contributions.
• Skipping raises. The next time your salary goes up, raise your contribution to absorb most of the pay increase. This is a powerful strategy. In five or 10 years, your retirement plan will seem far more realistic.

6. Rebalance

Rebalancing is the process of restoring targeted exposures in your portfolio. Targeted exposures are the percentages of stocks and bonds you want to own, such as 60% stocks and 40% bonds.

Over time, your owned percentage of stocks will rise as your stocks or stock funds appreciate. This means you’re making money, but your risk is also higher. Left alone, your 60/40 portfolio could evolve to 70/30 or 80/20.

To restore the 60/40 proportions, you will sell some of the S&P 500 fund and use the proceeds to buy more of your bond fund. Or, for a more gradual transition, you can change the terms of your automatic investments by lowering the stock allocation and raising the bond allocation. With this method, you don’t have to sell anything—which can be useful when stock prices are temporarily down.

Retire Wealthy

Retiring wealthy takes long-term planning plus a good dose of faith. At the start, it may seem impossible to amass a seven-figure retirement balance. Pressing on through the uncertainty is the key. After five or 10 years of investing and raising contributions, you will see real progress. And that’s when things get exciting—you can revisit the savings goal calculator and see a realistic path for reaching your millionaire objective.