How to get to $1 million

Lever 2: How much you save

By Paul J. Lim and George Mannes

"It's sort of like exercising," says Stuart Ritter, a financial planner with T. Rowe Price. 'You can devise the most optimal splits between cardio and weight training. But if you only go to the gym for six minutes, it won't really help you that much."

Let's say you have 20 years to invest and $250,000 already amassed. You can see from the table at right that boosting your annual savings from a modest $5,000 to an aggressive $20,000 could increase your chances of hitting $1 million in today's dollars -- $1.8 million nominally in 2031 -- from 31% to 67%, assuming a 60% stock/40% bond portfolio. If instead you kept your savings rate the same but upped your stock allocation to 80%, your chances of success would be less than fifty-fifty.

Savings may be the safer bet, but it's often the tougher task. Here are four ways to crank up the amount you're banking per year, in ascending order of difficulty.

EASY: Use other people's money.

You've heard this before, but it bears repeating: The simplest way to boost your savings is to max out your 401(k) match, since that's a hand-out from your employer. Say you make $100,000 and save 3% of pay. If you're eligible to receive 50¢ on the dollar for the first 6% of salary deferred a common match you'd be leaving $1,500 a year on the table.

Tax-advantaged accounts like 401(k)s and IRAs also allow you to build wealth faster, in that case by putting Uncle Sam's money to work for you. On the same salary, by contributing $10,000 annually to a 401(k), you'd immediately reduce your income taxes by $2,800, assuming you are single and in the 28% bracket.

For now you can think of it as saving the equivalent of $10,000 while ponying up only $7,200. But even after paying taxes at withdrawal, you'd still come out ahead in most cases thanks to tax-deferred compounding at a 6% annual return, you would be up by $1,600 a year if you'd been socking away $10,000 for 15 years.

(This is why we assume that you'll use tax-deferred accounts as well as tax-efficient investments such as index funds to avoid the drag of taxes on your returns.)

A LITTLE HARDER: Bump up savings systematically.

"The easiest way to save is to put as much of your savings on autopilot as you can," says Shlomo Benartzi, chief behavioral economist for Allianz Global Investors.

A decade ago he and University of Chicago economist Richard Thaler devised a 401(k) plan feature that allows workers to preset future contribution hikes -- that is, it lets them specify in advance how much they want to ratchet up savings. A 2007 study found that those who used this option boosted contribution rates from less than 4% to nearly 14% in about 3½ years' time. Those who didn't barely changed their deferrals.

Today half of large employers offer this type of feature, reports Hewitt Associates. If your company is among them, use the tool to step up contributions.

A $2,000 bump will feel like only $55 more per biweekly paycheck thanks to the tax benefit. And with the money tucked into savings, you'll be forced to adjust your spending. Your plan doesn't offer this option? Partner up with a co-worker, put a date on your calendars, and remind each other to call HR that day.

HARDER STILL: Live on last year's budget.

After the market crashed in 2008, retirees were commonly advised to forgo inflation-adjusting withdrawals on their nest eggs for a few years, to give their accounts time to heal. People who are working can adopt the same strategy with savings rates.

Say you earn $90,000 a year and save $9,000 of it. That means you "spend" $81,000 a year on discretionary items (such as entertainment and travel), nondiscretionary items (mortgage, utilities), and taxes. Let's also assume your pay climbs 2% annually for the next five years. Your $90,000 salary will rise to more than $99,000. But if you were to increase your "spending" each year only enough to cover the additional taxes you'd owe, you'd be able to save an increasing amount every year -- for a total of $15,000 by year five.

The challenge here, and the reason this falls under "harder still," is that if inflation rises faster than the long-term historical average of 3% -- as some economists fear -- you'd really have to trim your spending.

This plan may not be feasible in any case if you have a medical condition, what with health care costs expected to continue outpacing income growth for the next several years.

HARDEST: Boost your income.

There's only so much you can save on a given salary. At some point, the limits of austerity (you have to buy new clothes sometime!) and the impact of inflation will make it impossible to squeeze more out of your budget. When that happens, your only option is to increase your income.

Landing a higher-paying job would be one way to up your income. But since that promises to be challenging in today's tight labor market, bringing in income beyond your full-time job may be a more optimal choice.

If you have the capacity to do consulting work in the evenings or on weekends, even a small project could help you boost yearly savings by $10,000 or so. Plus, this would allow you to save more tax-deferred: You could contribute 25% of freelance pay up to $49,000 to a SEP IRA.

You might go further by taking steps toward starting a small business while still employed a path about half of entrepreneurs have taken, says the Kauffman Foundation. Or, with housing prices down in most markets and mortgage rates near historic lows, you could take a calculated risk on real estate, investing in rental properties to boost income.

True, improving your investment results may not speed you to $1 million as quickly as jacking up your savings rate. But it can help.

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