How Much Money Should I Have Saved by 32 to Retire With a Million?

One way to reach a million dollars saving from age 32 to retirement at 65 is to invest in tax-deferred investments, such as an IRA or 401(k). To cross $1 million in 33 years, you'll need to invest 17 percent of your pre-tax salary with every paycheck. Company matching funds can make up part of the 17 percent. This figure assumes you're making $50,000 a year at age 32, get a 3-percent pay raise each year, begin with a 401(k) balance of zero, get a 5-percent yearly rate of return and expect an annual inflation rate of 3 percent.

A significant challenge is that the rates of return on most investments are unpredictable. For example, $100,000 compounded monthly at 3 percent over 33 years is $268,791; while the same amount growing at 7 percent will add up to just over $1 million. This is a straight-line calculation and assumes that a lump sum is deposited with no additions down the line and that the return does not fluctuate. However, this is not a typical real-world scenario: in reality, returns fluctuate and deposit amounts may vary. Further complicating the matter, most experts recommend a diversified portfolio. This multiplies the number of growth trajectories and fragments the analysis.

Another variable is how much and how often you invest. A lump sum of $200,000 invested in tax-deferred or tax-free investments at age 32, with nothing invested annually, thereafter reaping a 5 percent annual gain over 33 years, will land you $1 million when you reach 65. However, an initial investment of only $100,000, with $100,000 distributed over 33 years ($3,030.30 a year), only yields $742,912.

But here's the catch: $1 million today isn't the same as $1 million in the future. When $1 million is adjusted for inflation, by the time someone who's 32 today reaches 65 in 2046, it will be worth only $371,406 in today's dollars. That assumes that the rate of inflation -- here, 3 percent -- can be accurately predicted and remains constant.