How to save a $1 million retirement fund starting now
Would you retire if you had a million dollars? Many financial advisers say that just about anyone can become a millionaire with the right money-saving strategy. However, by the time you retire, a lot of unforeseen circumstances will happen that affect the amount of money you save and the amount you need.
How to save $1 million
A million-dollar retirement is very feasible on paper, thanks to the miracle of compound interest. As you start investing you earn interest on those investments. You reinvest the interest and your money grows exponentially over time. In that case, the earlier you start the better. At age 20, an investment of $150 a month, assuming an optimistic 9 percent annualized return, will compound to about $1 million at age 65. Best of all, over 45 years you only throw in $85,000. Wait until 30 and you need to invest $350 a month–$147,000 total. Age 40: $900 a month, or $270,000.
How to retire on $1 million
If someone has a million dollars for retirement today, how much would they have to live on? Let’s assume a 4 percent interest rate compounded monthly, which is achievable with that amount of money in savings. Given those conditions, the millionaire could collect $3,333.33 in interest every month without touching the $1 million principal. Over time you can expect the cost of living to rise and interest rates to fluctuate wildly. At the present time, interest rates are so low that they are putting the hurt on people living on fixed incomes such as interest on savings.
A financially independent retirement
A million dollars is generally considered the benchmark for a financially independent retirement. How much a person will really need depends on a lot of variables. Whether one’s luck is good or bad as they go through life will have a major effect. How the economy behaves is another important factor (see Great Recession). A person’s lifestyle, health and how that influences life span is another. If you’re like many Americans without the lifetime of financial discipline described here, Social Security will help. And you’ll probably have to get a part-time job. But most people spend less as they get older. And money can’t buy happiness anyway, right?
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