Here's What It Takes to Save $1.5 Million for Retirement

Saving for retirement isn't easy. Higher living costs continue to make it hard to cover today's bills, never mind putting cash aside for tomorrow. A recent survey from AARP showed that more than 60% of Americans over the age of 50 are worried about the cost of their old age.

If you want to build a $1.5 million nest egg for retirement, good on you. Depending on how old you are now -- and how much you've already put aside -- it's an ambitious but achievable goal. To get there, you'll need to consistently invest a decent chunk of your paycheck, find the right investment strategies, and maximize tax benefits from 401(k)s and individual retirement accounts (IRAs).

Here's what it will take to save $1.5 million for retirement.

What accounts can help me save $1.5 million?

Tax-advantaged accounts can boost your retirement fund, so make sure you understand what's out there. Using the right accounts can add up to tens of thousands of dollars in extra retirement money.

Here are some accounts to investigate:

• 401(k)s: Not only do these employer-sponsored plans offer tax benefits, but some companies will also match a portion of the money you put in. Find out whether there's a matching program at work. If there is, talk to HR about how you can sign up.
• IRAs: There are several types of IRAs, depending on your work situation. Broadly speaking, a traditional IRA will let you reduce your tax bill today. A Roth IRA lets you contribute post-tax dollars and make tax-free withdrawals in retirement.
• Health savings accounts (HSAs): Strictly speaking, this is not a retirement account. However, given that health costs can make up a considerable amount of a retiree's budget, HSAs can make a big difference. You will need a high-deductible health plan to qualify. HSAs allow you to reduce your tax bill today, grow your money tax-free, and make tax-free withdrawals for health expenses.

There are limits on how much you can contribute to these tax-advantaged accounts each year. Work out how to maximize the benefits of these and other accounts. Once you've maxed out your tax breaks, use a regular brokerage account to complete your portfolio.

What investment strategies will help me save $1.5 million?

There's no single "right" investment when it comes to planning your old age. The trick is to build a diversified portfolio and manage your risk levels as you get closer to retirement. Someone who's in their twenties or thirties will be in a better position to take risks -- which can often pay higher returns -- than someone who's in their sixties.

Some people enjoy researching individual stocks to build their retirement funds. If that's not your bag, look into exchange-traded funds (ETFs), mutual funds, and index funds. They will all give you exposure to a mix of assets and don't take a lot of ongoing management.

ETFs or index funds that track the S&P 500 are popular retirement investment choices. They give a slice of the biggest 500 U.S. companies. Historically, the S&P 500 has generated average annual returns of over 8%. Over time, that can add up.

What monthly investment will get me to my $1.5 million goal?

There are a few different rules of thumb that financial planners use to calculate retirement savings. For example, Fidelity uses age-based milestones as targets and suggests you save 15% of your annual salary.

But if you've already set a target of $1.5 million, you can work backward from that figure. Use a compound interest calculator to experiment with different annual returns and monthly contributions. It's impossible to overstate the power of time when it comes to investing. A 25-year-old will find it much easier to reach $1.5 million than a 45-year-old.

For illustration purposes, let's assume an average annual return of 8% and a retirement age of 65. Real life won't work exactly that way, but it gives you an idea of how much you might need to invest.

If you're in your 40s or 50s and don't have much in the way of retirement savings, don't let those numbers discourage you. Instead, sit down with your budget and work out how you can start building your nest egg. The most important thing is to set yourself some achievable investment targets and start making contributions as soon as possible.

Do I need $1.5 million to retire?

For a long time, people used $1 million as a rough retirement benchmark. Unfortunately, higher living costs -- particularly health costs -- mean some people will need more. $1.5 million is becoming the new $1 million. But they are just numbers. They don't reflect where you live, what your costs might be, or what your lifestyle is.

If you're worried about having enough money for your old age, start by getting a realistic idea of what you'll need. Factor in how much you might get from Social Security and other sources. Think about what you spend now and how that might change when you're not working.

If you make the most of tax breaks and have plenty of time, you may well be able to save $1.5 million for your retirement. If you can't reach that milestone, don't let that stop you from saving. Every dollar you can put aside now will make a difference when you retire.