How To Save 2.5 Million For Retirement: 9 Best Strategies

If you want to learn how to save 2.5 million for retirement, then you are on the right page. Most people wonder whether it is possible to save 2.5 for retirement, especially if you earn an average income of about $60,000 a year.

If you are having the same thought, building up $2.5 million for retirement may appear unrealistic. However, it is possible, but it will take time and effort to achieve that goal

To save 2.5 million for retirement, you must first determine your savings goal, start your savings early, and maintain an emergency fund. be consistent, eliminate high-interest debts, and so on.

Read on to learn more about how to save 2.5 million for retirement.

Read how. to save money each month from your salary

What are the strategies to save 2.5 million for retirement?

These are some of the savings strategies to help you achieve your $2.5 million retirement goal.

Determine your retirement savings goal.

Before you begin your $2.5 million retirement plan, you must first determine how much money you will need to save.

Your retirement savings target is dependent on some factors, including your income. your current age, how old you may live, your retirement age, and estimated retirement expenses.

According to the general rule of thumb, which advises that you should strive to save for retirement, about 80 percent of your pre-retirement earnings. For example, if you now earn $60,000 per year, your goal should be to retire with an annual income of about $48,000. 

However, this is a basic guideline, and individual requirements may differ depending on lifestyle and other factors. 

Begin your retirement savings at an early age.

Another strategy that will help you save 2.5 million for retirement is to start saving early.  It is advisable to begin saving as early as possible with the goal of benefiting from throwing your funds through compound interest

You need to consider the time when you want to grow your retirement savings. The earlier you start saving, the better it is for you.

For example, if you begin saving at the age of 25 and save $900 a month at a 6% annual growth rate, you will be able to save approximately $2.5 million by age 67. However, if you wait until the age of 35 to begin saving, you will need to save around $1,800 monthly to achieve the same objective.

Maintain an emergency fund.

While an emergency fund may appear unrelated to saving $2.5 million for retirement, it is very important to maintain one. An emergency fund is money you will fall back on in case of unexpected occurrences like loss of job, illnesses, etc.

This money assures that you do not withdraw from your retirement funds or stop contributing when the unexpected happens.. So you must maintain it so you will be able to achieve your retirement target of $2.5 million.

Max out your employer’s retirement savings plan

.Another way to reach your target of saving 2.5 million for retirement is to exhaust your workplace retirement plan. Many workplaces have retirement programs, such as 401(k) or other pension plans, which can help you save more.

These plans frequently come with tax breaks and employer matches. Make the most of your employer’s retirement plan by contributing as much as you can and maxing out the amount that you are entitled to.

A lot of employers will match some or all of your retirement savings up to a certain percentage of your annual salary.

In 2023, the maximum annual contribution threshold for a 401(k) plan is $22,500, with those over 50 years old eligible for a catch-up contribution amounting to $7,500.

Eliminate high-interest credit card debt.

Eliminating high-interest debts will help you attain the goal of saving 2.5 million for retirement. While debt is not inherently bad, high-interest debt might limit your potential to grow your wealth and savings toward retirement.

If you have a credit card bill with an annual percentage rate greater than 8%, one of the best things to do for yourself is to pay it down as soon as possible.

Your investment will not grow if you keep using the money meant for it to pay large interest to your lender.

If you prioritize paying off this debt now, you’ll save money on interest and have more money for your retirement goal of 2.5 million.

Decide on the right investments.

In order to save 2.5 million for retirement, you need to make the right investment decisions. Investment in the stock market is an effective way of generating wealth. You can earn a lot more than you would have made if you put your money in a savings account.

However, it is critical to select the correct investments, as not all stocks can make your money. There are risks involved, as you may even lose your money.

When looking for investments, consider how much labor you are willing to put in. S&P 500 ETFs are an excellent choice if you like to invest passively.

If you want to spend time investigating various firms, purchasing individual stocks may be the best option. While equities have the greatest profit potential, they can also be quite volatile. 

Investing in a combination of mutual funds, bonds, and other savings vehicles can help to mitigate the impact of stock market volatility.

Diversifying your investments can help you increase your retirement savings. Creating a balanced investment portfolio is a great way to reduce risk and increase your wealth.

Read more on how to invest for retirement.

Don’t tap into your retirement savings early.

Another strategy that will help you to save 2.5 million for retirement is to resist the temptation of touching the retirement savings early.

While it may be tempting to withdraw funds from your 401(k) or IRA at a time of financial distress, doing so can have serious long-term financial consequences.

Not only does withdrawing from your retirement assets prematurely affect your savings efforts, but substantial early withdrawal penalties may make accessing your wealth before retirement even more detrimental. 

If you withdraw money from a 401(k) or standard IRA before age 59½, you will be charged a 10% penalty. In addition, you have to pay income taxes on the funds you withdraw.

As I have stated before, it is preferable to build an emergency fund rather than borrow from your retirement savings. Strive to have enough emergency funds to cover up to three to six months of expenses.

Be consistent, to save 2.5 million for retirement

Being able to reach $2.5 million in retirement savings is a challenging goal that will require a lot of effort.

 Building an adequate retirement nest egg may be possible if you invest consistently, budget, and let the power of compound interest work for you. 

Whatever time you have until retirement, now is the time to establish a plan. Make sure to be consistent and not be tired. With continuous effort and dedication, you will be surprised to see yourself reaching your target.

Consider a side hustle to save 2.5 million for retirement.

If you want to grow your retirement savings up to $2.5 million, starting a side hustle and putting the extra money aside is a wonderful way to do so.

 Whether that means working independently in your field or taking on a side gig is completely your choice to make.

Many people use their second jobs as a creative outlet. Upwork, Fiverr, etc are excellent platforms for offering your freelance services to businesses. You can even tutor online or start a blog to earn extra income.

Final thought.

Now that you know how to save 2.5 million for retirement, It is important to know that saving $2.5 million for retirement is not impossible; nevertheless, you must start early and remain committed to the purpose

. While putting money down for retirement may not bring an immediate, concrete reward, consider how nice it will feel to one day retire from your job with seven figures in the bank.

Learn more about savings by reading about ways to save money to achieve your big financial goal.

FAQs on how to save 2.5 million for retirement.

Can you save $2.5 million for retirement?

It is achievable, but it requires hard work, discipline, and time.

How to figure out how much I will need to save for retirement?

To determine how much you need to save to meet your goal of saving $2.5 million for retirement, you must consider your age, lifestyle, annual income, and other factors.  

As a general rule of thumb, assume that you’ll need approximately 80% of your pre-retirement funds after you retire.

This represents the probability that you will no longer incur expenses commonly connected with working, such as commuting, purchasing work attire, and eating out for lunch.  

This can also be determined using a retirement calculator.

For example, to save approximately $2.5 million for retirement, you have to start saving about $900 per month at age 25 with an average yearly return of 6% and retire at age 67.

Only a few things to remember: These figures assume you have no money in your retirement plan, that you will retire at the age of 67, earn an average 6% return on your investments, and intend to live till age 95.

The math also does not take into account possible employer matches, income rises, inflation, or other unexpected life events.

Can I retire with $2.5 million?

Yes, retiring with $2.5 million can adequately finance retirement at age 60. According to experts, the average worker will require approximately $2 million to retire comfortably.

This is on the assumption that withdrawal rates, taxes, healthcare costs, and other things are correct. Being flexible with spending and having some income possibilities as a backup provides wiggle room in case things don’t go as planned.

How long will 2.5 million last in retirement?

A $2.5 million retirement nest egg is likely to generate $100,000 in annual income for the rest of your life. This is based on the 4% withdrawal rate that many experts deem safe.

What are the four rules for retirement savings?

The 4% rule states that you should withdraw up to 4% of your retirement savings in the first year, and then adjust your withdrawals based on inflation.

Some risks associated with the 4% rule include market fluctuations, life expectancy, and changing tax rates.

The regulation may not be applicable today, and other withdrawal procedures may be more appropriate for your purposes.