One of the most pressing questions facing future retirees is just how much money they will need to be able to retire comfortably.
This question is difficult to answer because of the different costs of living and lifestyles across the country.
Despite these differences, one of the most common goals among future retirees is to retire with a half million dollars saved. Instead of analyzing whether this will be enough or not, here we will take a look at what it takes for people of different age groups to get there.
For the purposes of these scenarios, we will consider the situations faced by those aged 25, 35, 45, and 55.
Starting in Your 20s
If you begin to save for retirement at age 25, you have nearly 40 years to achieve your goal of having $500,000 for retirement.
But be warned, a half million dollars in 40 years will not have nearly the buying power it has now. If you start at 25 and invest $150 per month at eight percent interest, you will have approximately $503,000 when you retire in 40 years.
Of course, if you increase the amount you invest every month as your salary increases, you could have far more than the half million saved after 40 years.
Starting in Your 30s
A 35 year old who begins to save for retirement would need to put away $341 per month, at eight percent interest per year, in order to wind up with $501,000 at age 65.
Here we can see the first concrete example of the power of time as it relates to retirement savings.
Waiting 10 years, which is just one fourth of the time to retirement as compared to the 25 year old, means that the 35 year old has to save over double the monthly amount in order to reach the same retirement savings.
Starting in Your 40s
In order to make it to the half million dollar mark the 45 year-old must save $841 per month at right percent interest.
The good news is that many 45 year olds earn significantly more than the 25 and 35 year-old population. 45 is right in the sweet spot of the average person’s earning capabilities.
But it is clear that, as time marches on, it becomes harder and harder to save for retirement.
Starting in Your 50s
The 55 year old future retiree must save $2,666 at eight percent interest in order to be ready to retire with a half million dollars 10 years later.
The good news is that the half million will be far more useful to the 55 year-old than it will by the time even the 45 year old is ready to retire. This is because prices increase at a compounding rate; prices increase at an increasing pace.
But the bad news is that saving this sum every month for 10 years would be a Herculean effort, one that the average 55 year old is just not equipped to complete.
What can be seen here is that the sooner you begin to save for retirement, the better. And though some of these scenarios (particularly the ones for the 45 and 55 year olds) can seem a bit frightening, there is no need to worry.
First, many people save for retirement by investing in a 401(k) which offers (in most cases) employer matching of funds. These matches will help your retirement grow more quickly than outlined here.
Also, these scenarios are just examples.
At the end of the day, every person can steer their own retirement fate by deciding how much to save and how aggressively to invest said savings.