Have you every wondered how much you could potentially save over 5, 10, or 15 years? Or how much you would need to have even $50,000 of income in retirement? Here are some numbers to consider from my financial planning software:
Starting age: 25
Retirement age: 65
Savings: $5,500 annually
Rate of Return: 8% annually
Total at age 65: $1,424,811
Alternative: Wait 10 years to start saving
Starting age: 35
All other numbers stay the same.
Total at age 65: $623,058
The potential loss is over $800,000 by waiting just 10 years and out of pocket savings of $55,000. This is great example of how compounding interest works for you and the opportunity cost of not saving.
Once you get to retirement, how much should you have saved to earn $50,000 every year in today's dollars? A ball park figure of $850,000 if you continue to earn 4% a year in retirement. Remember, this is in today's dollars and doesn't take into account inflation.
Now, assume inflation is 3% per year from age 25 until age 65.
At age 65 $50,000 = $163,000
Withdrawing $163,000 starting at age 65 until age 94, earning 4% a year and inflating the withdraw 3% a year will require you to accumulate approximately $4,000,000 of wealth.
Now you can see the wisdom of your parents and grandparents suggesting you save. Max out your IRA accounts, enroll in your company 401k and at least get the company match. Let your money work for you. Make your 20s even better while building a strong financial foundation.
