Got $100,000? Here are 3 ways to grow that money into a million dollars in retirement savings

Despite the fact that America has one of the best economies in the world, the average person living in the United States cannot save for a comfortable retirement. According to studies, the average retirement savings for all US families is $87,000. So if you are at or around $100,000 today, I have two pieces of good news for you.

First of all, you are doing better than you give yourself credit for, so give yourself some love. Second, the next $100,000 will be felt much easierdue to the compounding power.

Yes, it is possible to retire with $1 million or more in savings. However, working to get there may depend on your life circumstances once you hit the first $100,000 milestone.

Here are three scenarios to outline what you can expect next. Remember, you’re never out of the game, no matter where you start.

Scenario no. 1: You are ahead of the game

The average family doesn’t have $100,000 in savings, so hitting that goal anytime before age 35 puts you way ahead of the game. Maybe you’re a high earner or lived frugally in your 20s and early 30s. Regardless of your circumstances, you can cut back on gas for decades to come. Let’s say you have that $100,000 invested in a diversified portfolio that generates an annual return of 8%.

Assuming you’re 35, you’d retire at 65 with nearly $1.1 million without adding another dime. You could achieve FIRE (Financial Independence, Early Retirement). For example, if you contributed $500 a month starting at age 35, you’d exceed $1 million in savings by age 58. Increase that to $1,000 and you’ll hit $1 million by age 55. The bottom line is that you will have options, which is what financial independence is all about.

Scenario no. 2: You started late

Most families start late, based on when people retire. That’s ok. Life happens: people buy houses, start families, and have student loans. No, the math isn’t as friendly if you start later, but there’s still tons of time to build a comfortable retirement. For this scenario, imagine a family that starts late but saves $100,000 by age 45.

You don’t benefit from the combo as much as those who started earlier. Without additional contributions, you would retire with $492,000 at age 65. How much should you add? Contributing $1,000 a month will put you at $1 million in retirement.

That sounds like a lot; however, many people enter their prime earning years in their mid-40s. It may be time to review your budget if you’re struggling to contribute the necessary amounts. For example, the average new car payment is $726. Switching to a used vehicle isn’t ideal, but it could free up hundreds of dollars toward your monthly contribution goal. Finally, they have to sacrifice some luxuries to build a comfortable retirement. It doesn’t sound fun now, but I promise you won’t be thinking about that new car you once had decades later.

The story continues

Scenario no. 3: You play catch-up

Of course, those who wait the longest to save for retirement have the toughest road ahead. Still, there’s still time, even if you’re way behind. The worst thing you can do is give up because you think it’s too late.

Let’s say you hit $100,000 by age 55 and want to retire with $1 million. You’ll have to save aggressively, but it’s still possible. Contributing $4,300 a month could likely add up to $1 million by age 65, assuming an 8% interest rate.

Regardless of their budget, many people may not have this money available. So, you may need to expand your career to provide additional time to help. Retiring at 70 instead of 65 means five more years to save. In this scenario, you only need to contribute $2,000 monthly to retire a millionaire. In other words, those five extra years cut the monthly contribution goal to less than half! Composing makes a huge difference, even with just five more years.

This is the take home point

You’ve read it all the way through this article, but it’s important enough to say it again: you have time to build a better retirement, no matter where you are in life. The math may change depending on your situation, but anyone can plan and work toward a better retirement than they would have otherwise.

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Got $100,000? Here Are 3 Ways to Grow That Money into $1 Million in Retirement Savings was originally published by The Motley Fool