Saving $1 Million for
How can you plan to do
it? What kind of financial commitment will it take?
Provided by MidAmerica
How many of us will retire with $1 million or more in savings? More of
us ought to – in fact, more of us may need to, given inflation and the rising
cost of health care.
Sadly, few pre-retirees have accumulated that
much. A 2015 Government Accountability Office analysis found that the average
American aged 55-64 had just $104,000 in retirement money. A 2016
GoBankingRates survey determined that only 13% of Americans had retirement
savings of $300,000 or more.1,2
A $100,000 or $300,000 retirement fund might be
acceptable if our retirements lasted less than a decade, as was the case for
some of our parents. As many of us may live into our eighties and nineties, we
may need $1 million or more in savings to avoid financial despair in our old
The earlier you begin saving, the more you can take advantage of
compound interest. A 25-year-old who directs $405 a month into a
tax-advantaged retirement account yielding an average of 7% annually will wind
up with $1 million at age 65. Perhaps $405 a month sounds like a lot to devote
to this objective, but it only gets harder if you wait. At the same rate of
return, a 30-year-old would need to contribute $585 per month to the same
retirement account to generate $1 million by age 65.3
The Census Bureau says that the median household
income in this country is $53,657. A 45-year-old couple earning that much
annually would need to hoard every cent they made for 19 years (and pay no
income tax) to end up with $1 million at age 64, absent of investments. So,
investing may come to be an important part of your retirement plan.4
What if you are over 40, what then? You still have a chance
to retire with $1 million or more, but you must make a bigger present-day
financial commitment to that goal than someone younger.
At age 45, you will need to save around $1,317
per month in a tax-advantaged retirement account yielding 10% annually to have
$1 million in 20 years. If the account returns just 6% annually, then you would
need to direct approximately $2,164 a month into it.4
What if you start trying to build that $1 million
retirement fund at age 50? If your retirement account earns a solid 10% per
year, you would still need to put around $2,413 a month into it; at a 6% yearly
return, the target contribution becomes about $3,439 a month.4
may be startling, but it is also hard to argue with. If you are between age
55-65 and have about $100,000 in retirement savings, you may be hard-pressed to
adequately finance your future. There are three basic ways to respond to this
dilemma. You can choose to live on Social Security, plus the principal and
yield from your retirement fund, and risk running out of money within several
years (or sooner). Alternately, you can cut your expenses way down – share
housing, share or forgo a car, etc., which could preserve more of your money.
Or, you could try to work longer, giving your invested retirement savings a
chance for additional growth, and explore ways to create new income
will a million-dollar retirement fund last? If it is completely uninvested, you could
draw down about $35,000 a year from it for 28 years. The upside here is that your invested retirement assets could grow
and compound notably during your “second act” to help offset the ongoing
withdrawals. The downside is that you will have to contend with inflation and,
potentially, major healthcare expenses, which could reduce your savings faster
than you anticipate.
So, while $1 million may sound like a huge
amount of money to amass for retirement, it really is not – certainly not for a
retirement beginning twenty or thirty years from now. Having $2 million or $3
million on hand would be preferable.
Financial Resources may be reached at 618.548.4777 or firstname.lastname@example.org. www.mid-america.us
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates.
This information has been derived from sources believed to be accurate. Please
note - investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
and advisory services offered through National Planning Corporation (NPC),
Member FINRA/SIPC, a Registered Investment Adviser.
MidAmerica Financial Resources and Malan Financial Group are separate and
unrelated companies to NPC.
2 - time.com/money/4258451/retirement-savings-survey/