What to do in your 20s, 30s, 40s, and 50s to retire with $1 million, according to financial planners

To retire as a millionaire, you need to start planning early.

Becoming a millionaire by the time you retire at age 65 is possible – if you start early.
Financial planners shared the key steps you should take in your 20s, 30s, 40s, and 50s to retire as a millionaire.
They say you should start early by regularly saving a percentage of your income, and continue living below your means as you age.

Becoming a millionaire doesn’t have to involve a big paycheck.

Instead, some people become millionaires by growing their income and saving and investing it, budgeting to live on less than they earn, and planning for the long term.

Business Insider asked two certified financial planners (CFPs) how to get there, decade by decade.

If you want to be a millionaire upon retiring at age 65, they explained, the key is taking advantage of time. If you start taking steps to build wealth in your early 20s, that gives you 40 years or more to reach the millionaire mark.

Here’s what they say you should do in your 20s, 30s, 40s, and 50s:

20s: Start saving a percentage of your income and let it compound over time

In your 20s, the key is to save as much as you can on a regular basis.

Alicia Butera, CFP at Planning Within Reach, recommends saving at least 20% of your income if you can, she told Business Insider. “It’s when you’ll have the least amount of expenses you ever have, especially when you get to your mid-20s and you start making real money but are still living the college lifestyle,” she said. “It’s good discretionary income.”

She suggests having that 20% (or whatever percentage you can afford) automatically deducted from your paycheck so you don’t even notice it’s gone, to get you in the habit of living below your means.

Saving early on is a staple to building wealth. William D. Danko, coauthor of the best-seller “The Millionaire Next Door” and author of “Richer Than a Millionaire,” said in Q&A with the Washington Post that one of the three key ways to become a millionaire is to commit to saving 20% of your income. If you spend everything you earn, he said, you can’t build a “significant financial net worth.”

“Saving when you’re young is crucial and most important for compounding – the longer duration you have will reap you the largest benefit,” Butera said. If you invest your savings in a retirement account or elsewhere, you’ll be taking advantage of of compound interest, where the interest you earn on your money earns more interest over time.

Mari Adam, CFP at Adam Financial Associates, seconds the importance of saving now and letting compounding begin by paying yourself first. Annual contributions to a Roth IRA, for instance, can turn into serious cash over time, she said.

Annual contributions to Roth IRAs are capped at $5,500 a year through 2018, and increase to $6,000 a year in 2019. And, because you pay taxes on the money you contribute to a Roth IRA when you make your contribution, you can withdraw it in the future tax-free.

Adam did the math for a hypothetical scenario, assuming a 7% annual return on your investments: If you contribute $5,500 every year to a Roth IRA starting at age 22, then bump up your annual contributions to $6,500 when you become eligible for catch-up contributions at age 50, you’ll have $1.5 million in tax-free money by age 65.

Your 20s are when you’re most likely to have discretionary income – save it instead of spending it for compounding opportunities.

30s: Live below your means and avoid lifestyle creep

Because many people tend to start making more money, get married and have a dual income for the first time, and buy a home or have kids in their 30s, it’s the decade when life can get more expensive, Butera said.

“Your 30s is a time when people can be enticed to spend the most money,” she added. The key here, she said, is to “resist living a lifestyle you can’t afford” to prevent yourself from making big financial mistakes that carry into the next decade. It’s up to you to keep up – or increase – the savings pattern you started in your 20s.

This means avoiding lifestyle creep, the tendency to spend more as you earn more.

Sarah Stanley Fallaw, author of the book “The Next Millionaire Next Door: Enduring Strategies for Building Wealth” and the director of research for the Affluent Market Institute, found that most of the 600 millionaires she studied lived below their means to achieve their seven-figure status.

If you’re buying a house, you’ll want to make smart mortgage choices and avoid becoming “house poor,” Adam said. Most of the millionaires Stanley Fallaw studied never purchased a home more than three times their annual income.

If you have kids, you’ll also want to focus on maintaining your career or financial fluency, Adam added. One parent may consider staying at home to raise children – if that’s you, keep in mind these findings by Fortune in 2016: If the average American woman takes a break from her career for half a decade, she’ll sacrifice $467,000 over her lifetime. For men, that jumps to $596,000. Those numbers include income, wage growth, and retirement assets and benefits.

Adam also stressed the importance of considering how you’ll stay self-sufficient if you find yourself single with children.

“You’ll need to be vigilant about keeping skills current, saving for your future, and participating in family budget and investment decisions,” Adam said. “Always know what ‘Plan B’ is if the marriage doesn’t work.”

Resist the urge to live a lifestyle you can’t afford.

40s: Focus on growing your income for retirement

Your 40s are the time to really focus on earning.

You might want to consider outsourcing things that stand in the way of your earning, from hiring a financial planner to manage your finances or an accountant to do your taxes, to hiring someone to mow the lawn or grocery shop.

“In your mid-career, you’re probably making the top tier of your income, so start having people do things for you so you can focus on your career and extending your income and benefits,” Butera said.

“These are close to your peak earning years,” Adam said. “Careers and personal lives can derail in your 50s, so get ahead of the curve. Know how you’re invested and focus on that long-term plan.”

Blogger and self-made millionaire John of ESI Money spent the past few years interviewing millionaires and found that many worked to advance in their job and increase their income through their career.

As you continue to grow your income, continue to tuck a percentage away for retirement and into other accounts. While continuing to save 20% of your gross income is optimal, Adam recommends a minimum of 15%.

“Keep your eye on the prize,” she said.

Allowing your kids to become financially dependent on you can prevent you from retiring as a millionaire.

50s: Stay on track for your retirement plan, and don’t let your children derail it

The decade before retirement is the final stretch. Now is an important time to teach your kids, nieces, and nephews how to make financial decisions and get them involved in the financial decisions you’re making, Butera said.

“I see all the time children or family members who aren’t financially independent, and that’s where your money ends up going – that does deter people a lot, especially if you have a giving mentality,” she said. “Some clients show love by giving and that ends up being monetarily. Giving up your savings and not saving for yourself in your 50s can be a huge deterrent.”

According to a Merrill Lynch report released last year, 79% of 2,500 American parents surveyed continued to provide financial support to their adult children, and 72% said they put their children’s interests ahead of their own need to save for retirement.

Teaching children money skills is a huge way to become financially independent yourself in the future, Butera said.

Adam added that at this point, you should not be doling any more handouts to kids and should refrain from going overboard on college costs or loans.

She also emphasized the importance of finding out where you stand for retirement – now is the time to make last minute adjustments. Don’t forget that turning 50 allows you to contribute more to your retirement accounts, known as “catch-up contributions.” Understand how any pensions or Social Security will work, and make a plan to stay on track to hit your million-dollar number for retirement, she said.

“You need to know by now exactly what you’re spending and what you’ll need in retirement,” Andrews said. “If it’s not a sustainable amount, tighten the belt now.”