If you had $1,000,000 today and you retired at age 67, that money could generate about $4,630 per month (as an annuity) in income for your life and the life of a spouse. Your combined Social Security benefit would be $2,478 per month assuming you collected at age 67 and you earned $55,000 a year when you retired. That provides an annual income of $85,000.
Wait, did I say a retirement income of $30,000 more than you were making while working⁉️ I sure did which means, you could keep some of that one million instead of using it all to buy an annuity if you wanted to.
But how do you get the million in the first place? You invest in the stock market even if it is only a low-cost S&P index fund.
Standard & Poor’s introduced its first stock market index in 1923 and created the S&P 500 Index in 1957. The annualized return for the S&P 500 Index (and its predecessor S&P 90 Index) between 1926 and 2014 was about 10.12%. The 5-year annualized return through the end of 2013 was about 15.45%. The 10-year annualized return through 2014 was about 7.67%, the highest 10-year annualized return since 2006. Jim’s Finance and Investments Blog
Now, what do you need to save to reach that cool million? Not that much it turns out.
Start at age twenty saving $165 a month until age 67 and with an average annual 8% return you reach your goal. Obviously as you earn more, you’ll want to increase that $165 to adjust for inflation. If that $165 sounds like a stretch for a twenty-year old perhaps it is, a stretch that is, not impossible for most willing to set sound financial priorities. Also consider that you can save on a pre-tax basis and may even get an employer match in a 401k plan as a bonus to make it that much more doable.
The key is to save early, save on a regular basis, save automatically, take advantage of any employer plan and follow a long-term investment strategy … don’t try to second guess your investments every day, every week, every month or even every year. When you are within ten years or so of retirement, it’s time to look at your investments with an eye toward future withdrawals.