Ever wonder what it takes to save one million dollars? A lot depends on how soon you get started, how much inflation runs, and how much your savings earn over the years. The later you get started, the more money you have to save each month to hit a one million dollar target. Just how much more? Let’s run the numbers, assuming your goal is to save one million dollars by age 65 and your rate of return is 8%.
At 25 years-old, you’ll need to save $309 a month to be a millionaire by 65. At 25, you probably aren’t thinking much about retirement, and would rather spend that $309 on a new car rather than some forty-year goal of reaching one million dollars. However, if you have the discipline to sock away the money in your company’s 401(k) and a Roth IRA, then chances are you will hit one million dollars.
If you wait just ten years, and at age 35 start saving, you have to save $705 a month to become a millionaire in thirty years. So now you are 35, probably married with a couple kids, two cars and a mortgage payment. Try carving $705 a month out of that budget! By now you are already regretting not starting sooner. It is not too late, by any means, but it will be all uphill from here.
If you wait twenty more years, until you are 45 years-old, you will have to come up with $1,750 a month to hit millionaire status in just twenty years. Ouch! Never too late to get started, but now you move from carving out a little to dedicate to savings to essentially saving the equivalent of a second mortgage payment every month. Those kids are probably in college now, you still have 15 years on the house and you have a little credit card debt to pay off from the vacation you took to celebrate your 20-year anniversary.
Of course, it is worth mentioning that inflation is the silent factor in this discussion. That one million dollars in 20 or 30 years will not be worth nearly as much as it is today, but it will still be a lot of money, so don’t let the discouraging idea of currency deflation keep you from saving. Open up a savings account. Start contributing to your employer’s 401(k) plan. Invest through a Roth IRA in a variety of diversified mutual funds. The bottom line? Get started today!
This post appeared in the Carnival of Best Personal Financial Planning and Personal Investment Articles.
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I’m 23 right now so that means I have to crank out about 309$ a month to have 1 million by the time I’m 65 (a bit depressing to think about it really, think about retirement when I don’t even graduate yet). Nevertheless, those who wait to the last minute are fools right. The only way a person in my situation to save about 300$ I will have to share a room instead of renting an apartment which cost about 800$ per month. I mean, huh, this could work.
Interesting to see how compound interest really kicks in. My goal is to get about $100,000 in a retirement account by the time I’m 30, then just let it compound. It (theoretically) comes out to about $1 million at 65, depending on your return assumptions. I will probably add some additional funds over those 35 years anyway, but I figure it will be a good base to work from even if I somehow don’t contribute during the rest of my life.