How to build a multimillion-dollar retirement fund

You don’t have to go looking for get-rich-quick schemes; they’ll happily find you.

If your email’s spam folder is like mine, it holds several hundred offers to start the “hottest digitally based business.” For just $100, you get malware and the opportunity to work from home. On the off chance that it goes wrong, there are always multilevel marketing companies, scratch-off lottery tickets, penny stocks and long-lost Nigerian princes.

The problem is that none of those things will make you rich; they actually have a better chance of making you poor. A new paper from J.P. Morgan Asset Management lays out the real way to build wealth: $6 million in retirement accounts and two fully funded college savings plans, to be exact.

The story of the Lees

The J.P. Morgan analysis shows how a hypothetical couple, the Lees, could effectively save both for retirement and college for their two children. They’re high earners — a combined salary of $137,000 at age 28 — so the paper puts their retirement needs between $4.8 million and $6.3 million. They’re also overachievers, with the goal of fully funding four years at a public college for both kids. The paper projects that will cost $48,000 a year for the older child and $53,000 per year for the younger one.

The remarkable thing is that these goals are achievable — if they start putting 15% of their combined income into 401(k)s at age 22. When they have children, they can shortchange that 15%, directing 3.4% of their income into a 529 college savings plan for each child instead. That means for a long stretch — 15 years — during which they’re saving only about 8% of their income for retirement, yet they still manage to hit their $6.3 million stretch goal.

Retirement is sort of the universal savings goal, one that many people are failing to reach. It can seem like you’re not allowed to even think of other things — college, a down payment on a house, God forbid a vacation — until you have that on track. In a way, this scenario illustrates that there’s some truth in that, even for high earners: The Lees were able to divert savings to college in part because they started so young.

But if you get that head start, keep up the momentum and invest wisely — J.P. Morgan assumes a 7% average annual return in the Lees’ 401(k)s and a 6% return in the 529s — reaching a range of goals becomes much easier.

The Lees have a clear advantage

This is not your typical American couple. The Lees earn twice the median household income. They had the ability, and the wherewithal, to start saving 15% of their income at age 22. (Presumably they each made that responsible decision separately, unless they married at 22 — who says opposites attract?) And they both have 401(k) plans with a company match.

That alone sets them apart. According to the Pew Charitable Trusts, only 58% of workers have access to a workplace retirement plan. That number drops to 47% for workers ages 18 to 29, and to 32% for workers who earn less than $25,000 a year.

Those workers miss out on a company match, the ease of paycheck deferrals and a tax-advantaged retirement account with one of the highest annual contribution limits. Fidelity Investments released some pretty stark numbers recently that illustrate how powerful all of that is. Savers who consistently contributed to their company’s plan for the past 15 years saw their average balance grow to $331,200, up from an average of $43,900 they had saved by 2001.

That’s an increase of over 650%, a figure that includes not only investment growth but employer matching dollars and employee contributions. These three things combined are what will get you to a secure retirement, but the first two wouldn’t be possible without the third.

Consistency matters most

What the Lees did that matters more than anything is save on a consistent basis. You can do that without a 401(k), by using a tax-advantaged individual retirement account like the Roth IRA.

The problem is that the Roth IRA contribution limit is much lower: $5,500 per year, less than a third of the $18,000 you can put into a 401(k). (Try our Roth IRA calculator.) That can set up a roadblock to putting 15% of your income, the rate that most experts recommend, into a tax-advantaged account.

But what’s frequently missing from that recommendation is that lower earners could aim to save less, perhaps closer to 12%. That’s because Social Security would replace a larger share of their preretirement incomes — as much as 53%, according to the National Academy of Social Insurance.

Target how much you should save with a retirement calculator, then get started and don’t stop. About three-quarters of companies polled by Accounting Principals plan to pay out end-of-year bonuses this year; pay raises next year are expected to average 3%. If you’re lucky enough to get one or both of those, consider it a jumping-off point. A NerdWallet analysis from earlier this year found that if average earners save half of their raises and all bonuses over a 40-year career, they could end up with $1 million by retirement.

No, that’s not a Lee-sized nest egg. But it’s significantly more than what the average American has, and it might be closer to what you actually need. As I said: The Lees are not typical.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

This article was written by NerdWallet and was originally published by Forbes.