Want to Get Your Portfolio to $1 Million by Retirement? Here's How Much You Should Invest Every Month

Key Points

• The more investing years you have left, the less you'll need to invest each month.

• The biggest unknown, however, is what your annual return will end up being.

• The $23,760 Social Security bonus most retirees completely overlook ›

Sometimes the hardest part about saving for retirement is simply getting started. Besides trying to figure out what to invest in, you may be wondering how much is necessary for you to achieve your goal. The former is going to depend on your overall risk tolerance, but the latter is going to require some calculations.

Below, I'll try to help answer both of those questions, assuming your plan is to retire with at least $1 million.

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What you should invest in will depend on multiple factors

The default option for many risk-averse long-term investors is to simply mirror the S&P 500 index. The index gives you exposure to the top 500 companies in the world. It's a good, no-brainer option that you can safely invest in and won't have to worry about, hence why I say it is the default. This can be accomplished with an exchange-traded fund (ETF) that tracks the index, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO).

But you can also be a bit more aggressive if you want to try and aim for better returns than the S&P's long-run average of 10%, and if you are willing to take on a bit more risk. The Vanguard Growth Index Fund (NYSEMKT: VUG) can be a good option in this case, as it focuses on large growth stocks.

With ETFs, there are plenty of options to choose from, but the VOO and VUG funds are among the safer and better-known ones out there. And over the past five years, they've generated comparable returns. While the VOO ETF has doubled in value, the VUG fund has risen by 111% (returns as of Sept. 29).

How much should you aim to invest each month?

The hardest part of creating an investment plan is knowing how much you should aim to invest each month.

Let's assume your ultimate goal is to get to $1 million. And let's also assume that your investment will grow between a range of 8% and 10% per year. At the top end is the S&P 500's long-run average while at the bottom end of the range is a buffer in case the market experiences a slowdown, which is a distinct possibility given how hot it has been in recent years.

Next, let's also assume that you're going to retire sometime within the next 20-40 years, at the age of 65.

As you can see, there are many variables to account for when trying to estimate how much you'll need to invest. But with the help of the table below, I've created a range of possibilities based on five-year increments and with varying annual returns, to show how much you would need to invest each month to get to $1 million.

Table and calculations by author.

The closer you are to retirement and the lower the annual growth rate is, the higher the amount you'll need to invest. Many of the figures in the table are high, however, and may not be realistic for many people to be able to save and invest that much each month.

But this assumes average or below-average growth rates. It also underscores the importance of focusing on growth stocks, which can generate better returns in the long run.

There will be some more risk, but if you're looking at a period of decades, then focusing on growth and going with a fund such as VUG rather than VOO can be a better option to consider. Although it doesn't guarantee you'll definitely earn a better return or won't need to invest as much as the above table suggests, it can help stack the odds in your favor that you'll outperform the market.

At the very least, by knowing how much you need to invest based on the above assumptions, you can get an idea of whether you're on track to meet your goals for retirement, or if you need to adjust your plans. But regardless of what your annual return ends up being, staying invested in the market has historically been a great move for investors.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Growth ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.