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START SMALL TO MAKE YOUR MILLION

If you're a new college graduate, the $1-million-plus needed for retirement might seem impossibly large.

Feeling discouraged? Try lowering your sights, aiming instead to accumulate savings equal to two times your annual income.

Once you hit that milestone, the financial wind will be at your back - and reaching your retirement-savings goal should be a breeze.

Suppose you expect eventually to earn $80,000 a year. Looking ahead to retirement, you reckon that, in addition to Social Security, you will want maybe $45,000 a year from your portfolio, adjusted for inflation.

To generate that $45,000, you will need a $1-million nest egg, calculated in today's dollars. This assumes that, in retirement, you use a 4.5 percent annual portfolio-withdrawal rate.

"People wonder how they will ever accumulate enough money," says Charles Farrell, a financial adviser with Denver's Northstar Investment Advisors. "But what many investors fail to understand is that once they reach a certain level of assets, most of the savings should come from investment growth."

Farrell figures the breakthrough occurs at around two times income. Let's say your salary has hit that $80,000, you have amassed $160,000 in savings, you are socking away 12 percent of your pretax income each month and your investments earn 6 percent a year.

Over the next 12 months, your $160,000 portfolio would balloon to $179,518, or $19,518 more. Your monthly savings would account for $9,600 of that growth. But the other $9,918 would come from investment gains. In other words, you've reached the crossover point, where the biggest driver of your portfolio's growth is investment earnings, not the actual dollars you're socking away.

You should, however, keep socking away money. That sacrifice will be handsomely rewarded as things really start to snowball. Using the assumptions above, your portfolio would soar from $160,000 to more than $418,000 a decade later. True, part of this gain would be lost to inflation. But inflation should drive up your salary, allowing you to squirrel away more money.

That still leaves the initial task of accumulating two times income.

"It can take people 12 to 15 years," Farrell says. "The earlier you can start, the better. But if you're close to two times pay by your early 40s, you're probably in pretty good shape."

As you strive to amass that sum, your top priority should be funding your employer's 401(k) plan. In addition to the initial tax deduction and continuing tax deferral, you will likely receive a matching employer contribution, which will help speed your portfolio's progress.

If you can, save outside your employer's plan by funding a Roth individual retirement account. That won't get you an initial tax deduction, but you will enjoy tax-free growth. A Roth offers a heap of flexibility. At any time, you can withdraw your contributions - but not the account's investment earnings - without any sort of tax hit. That means your Roth could double as an emergency reserve or as your house down-payment fund.

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