Retirement saving doesn’t have to be painful, but the longer you wait, the harder it will be to catch up. That can be hazardous to your financial health. If you think it will be difficult coming up with the funds now, consider how hard it will be in the future.
While this example assumes a $1 million nest egg by age 65, this amount may not be appropriate for everyone. For some, it won’t be enough.
According to Morningstar, the following monthly amounts are needed to accumulate $1 million by age 65 assuming an annualized 7% compound return:
Age 25: $381 per month to accumulate $1 million by age 65
This is a big number for many 25 year old’s especially considering the job market and the level of student debt many graduates are faced with. To put this amount in perspective, it is the about the same amount as the average used car loan payment which is $352 (according to Experian as referenced in an article on CNBC.com)
Retirement Saving: Delay Will Be Hazardous To Your Financial Health
Age 35: $820 per month to accumulate $1 million by age 65
This is very close to the average monthly house payment of $865 according to an analysis by Realtytrac and reported in HousingWire.com. Of course, depending on where you live, this amount could be much more.
Age 45: $1,920 per month to accumulate $1 million by age 65
This is a little more than the expected monthly expense of $1,532 for tuition, fees, room and board for a public 4-year school (in state) according to CollegeBoard.com.
Age 55: $5,778 per month to accumulate $1 million by age 65
This is equivalent to a gross annual salary of $69,336. This is a huge number and very few could save this much. If this was your salary and you had $0 expenses, it still wouldn’t be enough because taxes would take a huge bite.
The level of sacrifice increases with age when it comes to retirement saving. While many are under the impression that it will be easier to start saving later when your income is higher, the reality is that it becomes much more difficult. Despite the fact that our incomes typically grow, so do our expenses and financial obligations in general.
If you think it’s hard saving $381 at age 25, think of how hard it will be trying to save $1,920 at age 45. It is never too late to start saving, but the sooner the better. Starting a retirement savings plan now will make it easier to afford the things you want in the future.
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