Here's How Much You Should Aim to Have Invested in Stocks Today if You Want to Retire With $1 Million and Have 20 Years or Less to Go

Key Points

• The stock market has been red hot in recent years, and investors may need to brace for lighter returns in the future.

• Investing in the SPDR S&P 500 ETF can be a good way to grow your portfolio in a safe way that protects your savings.

• 10 stocks we like better than SPDR S&P 500 ETF Trust ›

Are you worried about not having enough money for retirement? If your goal is to retire with at least $1 million but you have only 20 investing years left (or less), I'll show you how much you should aim to have invested in the stock market today.

By knowing how much you need, you can adjust accordingly and invest more to ensure you're on track -- or perhaps consider altering your plans by retiring later or in a more modestly priced city.

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The key is also to ensure that you aren't trying to take on too much risk in order to compensate for a shorter time frame. That could end up doing more harm than good for your portfolio.

Simply tracking the S&P 500 index, which is a collection of the top stocks on U.S. exchanges, is often the best approach, especially when you are trying to keep your risk low. Over decades, it has averaged an annual return of around 10%.

Here's a look at how to determine how much you should plan to invest today, in an exchange-traded fund (ETF) that tracks the index, if your goal is to retire with a least $1 million.

Image source: Getty Images.

How much might your portfolio grow over the next 20 years?

To determine how much you need invested in the stock market today, it's important to first consider at what rate the market might grow in the long run. Going with 10% can be a default option since that is what it has averaged for the long haul.

But there's also the danger that things may slow down. Consider that in each of the past two years, the S&P 500 has risen by more than 23%, which is by no means typical.

It may be likely that during the next 20 years, it will average a lower return given that the stock market is around record levels and may be due for either a bad year or at least several underwhelming ones. If you take a more conservative position, then you might expect an annual return of just 9%, or perhaps even 8%.

The big uncertainty right now is that the market may experience a cooldown in the years ahead, and even just the difference of a few percentage points can drastically increase how much you might need to have saved up today, in order to hit your retirement goals.

However, tracking the index can still be the best option for the vast majority of investors because it offers a balance of safety and growth. And a great ETF for this purpose is the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). It has a low expense ratio of 0.0945% and tracks the S&P 500.

With this fund, you won't have to worry about a lack of diversification or too much exposure to risky growth stocks. The SPDR ETF makes for a fairly low-risk way to invest in the markets for the long haul.

How much do you need to have invested in the stock market today?

I've created the following table that shows you how much you would need to have invested today to end up with a $1 million portfolio, based on varying growth rates and years until retirement (assuming you plan to retire at 65).

Calculations and table by author.

I didn't include fewer than 10 years until retirement because at that stage, you may prefer safer investment options (e.g., bonds), which may result in lower annual returns. But if you have between 10 to 20 years to go, then investing in the SPDR S&P 500 ETF and tracking the broad index can ensure you safely grow your portfolio.

Even if you may not be on track to hit your retirement goals, putting money into a fund like that can ensure your financial position improves over time.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.