Want to Retire With $1 Million? Here's How Much You Should Aim to Have Invested Based on Your Age

A $1 million portfolio can be a great target for retirement. If you have a portfolio balance that significant, then you can use it to invest in dividend stocks and other income-generating investments. By doing so, you may not even have to deplete much of your savings, since the dividend income may provide you with sufficient cash flow to pay your bills and stay on top of other expenses.

Getting your portfolio to $1 million, however, can be challenging. Here's how you can draw up a plan to get there.

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Invest in a low-cost fund to track the market

It may be tempting to pick individual stocks, especially ones with tremendous growth prospects, but when you're looking at the very long term, things can change drastically. There aren't just company-specific factors that can affect returns, but also industry and broader economic conditions that can weigh on an individual stock's performance.

To simplify your strategy, you may want to consider simply tracking the market. There's nothing wrong with mirroring the S&P 500's performance -- it has averaged an annual return of close to 10% for decades. Fund managers often struggle to outperform it. So if you might not be able to beat it, why not just mirror it?

A solid choice for mirroring the S&P 500 is the Vanguard S&P 500 ETF (NYSEMKT: VOO). It has a minuscule expense ratio of 0.03%, and by investing in the exchange-traded fund (ETF), you'll gain exposure to the broad index, which features the top 500 companies on the U.S. markets.

^SPX data by YCharts.

How much should you invest in the ETF today?

The big question is ultimately how much money is necessary to invest in the market today to be able to end up with $1 million by retirement. If you assume that the market will continue to average an annual return of around 10% over the long term, then it really depends on how many years you have left until retirement. Working backwards from that, it's possible to determine how much you should invest right now.

The table below does that work for you. For the sake of mapping out more possible scenarios, I've also included columns for where the growth rate is above and below the S&P 500's long-run average.

Table and calculations by author.

This table assumes you retire at the age of 65. It also assumes you make one lump sum investment into the VOO ETF today and leave the money there until you retire. To accelerate your gains, you can add to your position over time.

Investing in the market is a solid choice, at any age

The numbers in the table above may seem daunting, especially if you don't have a lot of money saved up right now. However, even if you may not feel as though you're on track to get your portfolio to $1 million, it's still a good idea to invest in a fund like the Vanguard S&P 500 ETF. It gives you broad diversification and can grow your savings steadily over time, and you'll likely be much better off than simply holding money in the bank.

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