Vacation time is coming up. We have to go to a relative's wedding coming up in a while. So I had to make lodging arrangements, yaddah yaddah. Then I started to think about the bride and groom, and the money gift we're giving them (you never get a gift wrong if you give them $$). Along with noting the increasing cost of lodging and everything else, I was just musing about them still having to work for many more years, and they just bought a home together before the mortgage rates got way up there, etc. I'm hoping they're also saving toward their future.
That got me to wondering. Can people reach a million dollars or more toward retirement nowadays? A few somewhat conservative assumptions and calculations say that it is, indeed, possible. And possibly easier than one may think. Assumptions are necessary because nobody knows what's coming down the road in 5 years or 20 years, let alone 30 or more. Death and taxes are the only thing that we know for sure is coming.
Let's assume you're 35 and planning on retiring at 65. Right now, you think you're doing everything right with the wife who worked until the kids were born, big boy toys, etc., and putting money away for retirement and college for the kids.
We'll also assume you have a current 401k balance of $13,169.00, which is data provided by some stupid financial group that says 30-35 year-olds have that as a median amount. But I'm lazy and not going to do a research paper on it. It's an assumption. Deal with it.
After all the bills and everything is taken care of, you find out you can put in $250 per month into your 401k. Unfortunately, the assumption is you work for a sh*tty company that doesn't match a percentage of your contributions, but at least you have an assumed pension plan. Via the calculator for your pension, you will make, say, $1,500 per month pension at age 65 when you retire. Probably more, but just bear with me.
We'll also assume you're stuck exactly where you are as far as being able to only put in $250 per month for the next 30 years until you retire.
Where do we land?
SSA says the average couple on SS makes $2,753.00 per month in benefits. Assuming you live until age 95, that's 30 years of payments after retirement.
With the SSA benefits and pension alone, you'll be raking in 2,753 + 1,500 = $4,253/month. For 30 years (360 months), you'll have been paid $1,531,080.00
Now, what about that sorry-azz 401k you were putting a paltry amount in every month?
$250 x 360 (30 years until you retire) is an input to your 401k of $90,000.00. (If your company would match up to a certain percentage, it very likely would be double that, for comparison)
But you were putting it in your 401k, and investing in rather safe securities, so EVEN IF you made, say even a paltry 2% per month on average (money markets make over twice that right now) over the 30 years, you would end up with nearly $44K in returns, netting you with about $147,165.00 in your 401k when you retire. Keep in mind, you'll only have 8 years to do whatever with it until mean ol' Mr. Required Minimum Distributions when you reach 73 (soon to be current law).
So your total retirement value, if you retire at 65 and croak at 95, will be $1,678,245.00. And this is assuming your wife does not work, and your super-low-risk, low-input savings plan pretty much sucks.
If you estimate you'll die in 30 years, you figure on getting distributions right away. So, $147,165.00 should net you $408.79 per month for those 30 years. Since you're already getting $4,253 + $408.79 = $4,661.79 per month at 65, or $55,941.48 annually. (BTW, in this case, RMD wouldn't be terrible, since it would only be an average distribution requirement of $445.95 per month without extra penalties.)
Everyone's situation is different, but the key is, getting to a million dollars accumulated wealth over the years isn't super-difficult, especially when you have 30 years or more to get ready for it. Of course, by the time your 65, the $1 today may be worth only about 12 cents in tomorrow's dollars. So you may NEED 3 million. Who knows? If you haven't started saving for it, do it now.
To summarize- you'll end up with about 1.6 million by the time you're done croaking at 95 in the provided example. And it won't even be that hard to do, really. The assumptions above were made with severe headwinds against you saving for retirement and a poor return over time.
Some tips-
Save early, save often. The younger you are when you start saving, the better off you'll be. One of the biggest drawbacks I've found is that for years we got into stuffing the mattress full of money, and now when it's time to relax and enjoy some of those fruits of our labor, we don't have much of a clue on how to do it without feeling like we'd be wasting it. Old habits are hard to break. We don't look at what we can buy with money. We're usually looking at where we can invest it.
If you can, every time you get a raise, bonus, whatever, put HALF of it into your Roth or 401k. Say if you get a $2/hour raise. Bump up your savings amount going to your investments by that percentage to put an extra $1 per hour in there. You'd be surprised on how little that hurts your wallet but how well over time it helps your 401k.
Resist the urge to "borrow" money from your 401k before it's time. Remember the reasons you started saving in the first place. Obviously, if you fall on hard times, you gotta do what you gotta do, but you should consider the 401k off-limits until you retire. If not 59.5, you'll get penalized for early distributions. One good thing is if you're at least 55 when you retire from your job, your 401k distributions don't get penalized.
Find out if your company provides any sort of 401k or retirement savings plan match. If you don't have a company retirement pension plan at work, they usually fund more in your 401k to make up for that. Use every chance to maximize the "free money" that the company will contribute to your savings plan.
Do what you can to pay off your house, cars, any big credit card balances, and other big ticket items BEFORE you retire. You'll find that you can live pretty comfortable off not as much as you think when you don't have a bunch of bills. Remember, you're still about 30 years away in the example. So your favorite G-body, extra car parts, tools, etc., will likely already be in your garage by then. So that's much less $$ you need to buy that junk since you already should have it.
If eligible for SSA and assuming it's still there in 2053, check the website periodically, at least once a year, to ensure they have your latest income displayed correctly and track it as you go. It's incumbent upon you to ensure that stuff is correct. Use the estimator for benefits when you decide what age to take it. It's been proven VERY accurate figuring up what your monthly check will be provided all your income has been recorded properly.
Unless you're already on your death bed, make a plan for the future. You may die tomorrow, you may die in 2083, or somewhere in-between. Make the plan and work toward it.
That got me to wondering. Can people reach a million dollars or more toward retirement nowadays? A few somewhat conservative assumptions and calculations say that it is, indeed, possible. And possibly easier than one may think. Assumptions are necessary because nobody knows what's coming down the road in 5 years or 20 years, let alone 30 or more. Death and taxes are the only thing that we know for sure is coming.
Let's assume you're 35 and planning on retiring at 65. Right now, you think you're doing everything right with the wife who worked until the kids were born, big boy toys, etc., and putting money away for retirement and college for the kids.
We'll also assume you have a current 401k balance of $13,169.00, which is data provided by some stupid financial group that says 30-35 year-olds have that as a median amount. But I'm lazy and not going to do a research paper on it. It's an assumption. Deal with it.
After all the bills and everything is taken care of, you find out you can put in $250 per month into your 401k. Unfortunately, the assumption is you work for a sh*tty company that doesn't match a percentage of your contributions, but at least you have an assumed pension plan. Via the calculator for your pension, you will make, say, $1,500 per month pension at age 65 when you retire. Probably more, but just bear with me.
We'll also assume you're stuck exactly where you are as far as being able to only put in $250 per month for the next 30 years until you retire.
Where do we land?
SSA says the average couple on SS makes $2,753.00 per month in benefits. Assuming you live until age 95, that's 30 years of payments after retirement.
With the SSA benefits and pension alone, you'll be raking in 2,753 + 1,500 = $4,253/month. For 30 years (360 months), you'll have been paid $1,531,080.00
Now, what about that sorry-azz 401k you were putting a paltry amount in every month?
$250 x 360 (30 years until you retire) is an input to your 401k of $90,000.00. (If your company would match up to a certain percentage, it very likely would be double that, for comparison)
But you were putting it in your 401k, and investing in rather safe securities, so EVEN IF you made, say even a paltry 2% per month on average (money markets make over twice that right now) over the 30 years, you would end up with nearly $44K in returns, netting you with about $147,165.00 in your 401k when you retire. Keep in mind, you'll only have 8 years to do whatever with it until mean ol' Mr. Required Minimum Distributions when you reach 73 (soon to be current law).
So your total retirement value, if you retire at 65 and croak at 95, will be $1,678,245.00. And this is assuming your wife does not work, and your super-low-risk, low-input savings plan pretty much sucks.
If you estimate you'll die in 30 years, you figure on getting distributions right away. So, $147,165.00 should net you $408.79 per month for those 30 years. Since you're already getting $4,253 + $408.79 = $4,661.79 per month at 65, or $55,941.48 annually. (BTW, in this case, RMD wouldn't be terrible, since it would only be an average distribution requirement of $445.95 per month without extra penalties.)
Everyone's situation is different, but the key is, getting to a million dollars accumulated wealth over the years isn't super-difficult, especially when you have 30 years or more to get ready for it. Of course, by the time your 65, the $1 today may be worth only about 12 cents in tomorrow's dollars. So you may NEED 3 million. Who knows? If you haven't started saving for it, do it now.
To summarize- you'll end up with about 1.6 million by the time you're done croaking at 95 in the provided example. And it won't even be that hard to do, really. The assumptions above were made with severe headwinds against you saving for retirement and a poor return over time.
Some tips-
Save early, save often. The younger you are when you start saving, the better off you'll be. One of the biggest drawbacks I've found is that for years we got into stuffing the mattress full of money, and now when it's time to relax and enjoy some of those fruits of our labor, we don't have much of a clue on how to do it without feeling like we'd be wasting it. Old habits are hard to break. We don't look at what we can buy with money. We're usually looking at where we can invest it.
If you can, every time you get a raise, bonus, whatever, put HALF of it into your Roth or 401k. Say if you get a $2/hour raise. Bump up your savings amount going to your investments by that percentage to put an extra $1 per hour in there. You'd be surprised on how little that hurts your wallet but how well over time it helps your 401k.
Resist the urge to "borrow" money from your 401k before it's time. Remember the reasons you started saving in the first place. Obviously, if you fall on hard times, you gotta do what you gotta do, but you should consider the 401k off-limits until you retire. If not 59.5, you'll get penalized for early distributions. One good thing is if you're at least 55 when you retire from your job, your 401k distributions don't get penalized.
Find out if your company provides any sort of 401k or retirement savings plan match. If you don't have a company retirement pension plan at work, they usually fund more in your 401k to make up for that. Use every chance to maximize the "free money" that the company will contribute to your savings plan.
Do what you can to pay off your house, cars, any big credit card balances, and other big ticket items BEFORE you retire. You'll find that you can live pretty comfortable off not as much as you think when you don't have a bunch of bills. Remember, you're still about 30 years away in the example. So your favorite G-body, extra car parts, tools, etc., will likely already be in your garage by then. So that's much less $$ you need to buy that junk since you already should have it.
If eligible for SSA and assuming it's still there in 2053, check the website periodically, at least once a year, to ensure they have your latest income displayed correctly and track it as you go. It's incumbent upon you to ensure that stuff is correct. Use the estimator for benefits when you decide what age to take it. It's been proven VERY accurate figuring up what your monthly check will be provided all your income has been recorded properly.
Unless you're already on your death bed, make a plan for the future. You may die tomorrow, you may die in 2083, or somewhere in-between. Make the plan and work toward it.
