In theory, $1,000,000 saved for retirement should allow you a pretty decent lifestyle during your golden years. Getting there is not nearly as difficult as it looks, especially if you are young and smart about saving.
Young people have an advantage that older folks don’t have: time is on their side and the magic of compounding allows them to put less money aside to reach that million-dollar goal.
Here’s how a 25-year-old can retire at age 65 with a million dollars: put $322 each month into a tax-sheltered account, like an IRA or a 401(k), and if you invest it wisely and get 8% average annual return until you’re 65, you will be a millionaire. Your total contribution to your retirement will be under $155,000, the rest is earning on your savings.
If you start later, here’s how much you will have to save monthly:
Of course, this assumes that you invest to get an average annual return of 8%. That’s not unreasonable if your portfolio is heavy in stocks and you have a long-term time horizon.
If you play it too safe with your investments, you will see lower returns and therefore you will need to compensate by making larger contributions to have $1,000,000 accumulated by age 65:
If you are like most Americans, you are a few years behind on your retirement savings. However, please note that the examples assume that monthly contributions stay the same. In reality, as we get older and earn more, we can usually afford to put more money aside. This may be a good time to meet with a financial planner to determine how to reach your retirement savings goal. Call or email us today.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.