I’m retired now, at age 34. I’ll admit that it was at least an equal part luck to any skill I applied. But it helped a lot that I didn’t need $1 million to retire. My retirement probably won’t last more than a year or so, since I’ll go back to university, then back to work as a teacher overseas. But I won’t technically need the income, because I can live off $600,000 or so.

Lately, I’ve become aware of a couple people who saved or are trying to save $1 million by age 40. It occurred to me to wonder what exactly would take to save $1,000,000 in 15 years. The answer is found very easily by using either a business calculator with a FVM calculation, or using the appropriate function in a spreadsheet.

First, let’s assume it’ll take 15 year. By age 25, many people are finished university and working in their first job. From age 25 to age 40, there are 15 years or 180 months. Most people seem to budget on a monthly (or semi-monthly) basis, so we’ll work with 180 months. We’ll find out how much a person would need to save monthly to accumulate $1 million. The most difficult assumption to pick is the return. Because 15 years is relatively short, inflation will have only a moderate impact. In reality, inflation causes prices to double in about 30 years, so after 15 years, $1,000,000 would only buy about $666,667 worth of stuff. To counteract that, subtract 2-3% to your desired rate of return to account for inflation. I will use 6%. That means either investing in a moderate portfolio of investments, or investing for 8-9% and getting 6% net of inflation.

=PMT(6%/12, 15*12, 0, 1,000,000) is the equation to enter into the spreadsheet. Here’s what it means: What is the payment when I earn 6% (divided by 12 gives the monthly rate), over 15 years (in months), starting from $0, ending with $1 million. The fact that the result is negative signifies deposits rather than withdrawals. The answer is roughly $3,440, although you could substitute your own numbers.

So what would it look like to save $3,440 per month every month in real life? In theory, it is of little importance how much a person earns or spends, as long as the difference is $3,440 each month. In reality, a person who spends $10,000 per month will get much less use out of $1 million than a person who spends $3,000 per month. In our example, a single 25 year old may be able to spend only $2,000 per month. Add the $3,440 target savings amount to get $5,440 and then gross up for taxes, and that person would probably need to earn about $80,000 gross. That’s pretty high, but not totally unreasonable. Then, as the individual marries, buys a house and has a family, all things that tend to increase spending, their salary might increase also with raises over time. To spend $3,500 per month, the gross salary would need to be a little over $100,00 and to spend $5,000 per month, the gross salary would be around $130,000.

These aren’t typical amounts for typical people. But there’s nothing typical about trying to save $1 million by age 40. The most important point here, the one that stands out the most to me, is the huge gap between the amount earned and the amount spent. We’re not just talking about “living below your means,” but living WELL below your means. And it doesn’t necessarily have to be $3,440 per month right at first, especially if it will be a higher amount during later years.

P.S. How did I do it? I actually earned an annualized return of very close to 20% over a period of six years. I paid off my $160,000 mortgage in seven years. And I saved every “extra” dollar. I also got pushed into retirement a year earlier than I had planned, and I see no point getting a job for just a year if I don’t need to. I also plan to return to work eventually, so I’m not to fussy about having more than enough.