How to Retire a Millionaire

July 8, 2008 — -- With record-high gas and food prices, many Americans are struggling just to make ends meet, and a lot of people are looking for ways to get more money as they eye retirement. Find out what you can do at any age to ensure your finances during retirement.

How is it practical to establish monthly savings goals to join the ranks of the millionaire club?

Money is tight for most Americans right now, but the bottom line is that you cannot afford not to start saving and investing for your future. It is pretty simple — if you do not put the money away now, there will not be enough for you to live on later. And the earlier you start, the more manageable your savings goals will be.

How can I retire a millionaire?

At Age 25

At 25 years old, if you can save $75 a week, or $300 a month, in a mutual fund with an average return of about 8 percent, you would have $1 million by the time you turn 65.

The first place to start is with your employer's retirement plan, such as a 401(k). While I always advise maxing out your contributions, this is not always possible, so at a minimum, be sure to contribute enough to qualify for your employer match. According to the Profit Sharing/401k Council of America, about 78 percent of employers offer some type of match.

Not taking advantage of this is the same as passing up free money. If you don't have an employer retirement plan, definitely invest in a Roth IRA if you meet the income requirements, or a traditional IRA. Twenty-five is also the age to start an emergency savings fund (with three to six months of living expenses) as well as to pay down any outstanding debt and be sure to avoid building up new debt.

At Age 35

If you haven't saved anything yet, you will need to sock away $671 per month (also in an investment earning 8 percent annually) to reach $1 million by 65.

Again, first and foremost, take advantage of your 401(k) plan. If you can, contribute the maximum, which is $15,500 in 2008. You also may want to consider other savings vehicles that offer tax advantages, such as your home state 529 plan if you have kids.

That said, keep in mind, your retirement savings must take priority over saving for your kids' future education expenses. There are multiple options for your kids to finance their higher education, and they will have their whole careers ahead of them to pay off any loans. But, as I have said many times, there are no scholarships for retirement.

At Age 45

If you're starting from $0, you will need to save $1,698 per month (again at an 8 percent annual return) to make $1 million over the next 20 years. While the pressures on your finances may be greater at this age with growing children and aging parents, it is critically important to keep at it and save for your own future.

If possible, contribute the maximum to your retirement plan and also invest in an IRA. The bulk of your savings — or 80 percent — should be in stocks, with the remaining 20 percent in more conservative investments like bonds.

While I am biased toward stock investments, I have always counseled diversification across different types of stocks, which helps to mitigate risk. To that end, make sure you are not overweighted in company stock and that your equity diversification is made up of a variety of mutual funds instead of individual securities.

At Age 55

If you have no money saved, it becomes very difficult to get to $1 million in 10 years, but you can do it if you save $5,446 a month in an investment with an average annual return of 8 percent.

In addition to maxing out your contributions to your employer-sponsored retirement plan, also take advantage of catch-up contributions, which allow you to contribute an additional $5,000 per year. At this stage in your life, your investments should be 75 percent stocks and 25 percent bonds.

If you are starting with little or nothing in savings at this point, you definitely should consider working past 65 years old. Not only will your retirement savings be greater, but your Social Security benefits will also be higher.

What additional advice do you have?

Times are tough right now, so you just need to do the best you can. Be incredibly diligent about how you spend every dollar, and save as much as you can, even if it is a small amount.

When things get better — and they will — you can reassess your savings goals and put away more. The key is to get started right now, no matter how old you are.