America has a massive retirement savings crisis. More than 40 percent of Americans have less than $10,000 saved for their golden years, according to a recent GOBankingRates study.
However, being so far behind in savings does not doom you to poverty. Even if you are relatively far along in your work life — maybe you’re 55, or even 60 — all is not lost. It still is possible to save $500,000 between now and the age of 70 or 75.
Let’s say you are starting today with nothing saved for retirement. Here is how much you must squirrel away to reach your goal of $500,000 over 15 years based on various rates of return for your investments:
Annual rate of return
Annual amount to save
Total amount saved
5 percent
$22,500
$509,793.56
8 percent
$17,500
$513,174.95
10 percent
$14,500
$506,771.08
12 percent
$12,000
$501,039.37
15 percent
$9,500
$519,815.99
Without a doubt, amassing that $500,000 in such a short time frame is going to be a challenge. But keep in mind that the S&P 500 has averaged an annual return of nearly 10 percent since 1928.
Of course, there are no guarantees the market will continue to rack up such large gains going forward. In truth, you cannot control market return. On the other hand, you have much greater power over how much you spend and save.
If you are just starting to invest for retirement, take the advice of Money Talks News founder Stacy Johnson. He urges you to skip those online retirement calculators and to avoid overthinking your savings plan. Instead, simply save and invest as much as you reasonably can:
At the end of the day, the amount we should all put aside for retirement is the most we can. You don’t need a calculator to tell you that’s the sole determinant of the quality of retirement you’ll have and when it will begin.
Of course, changing your saving habits will take time. Just as you can’t go from a couch potato to a marathoner in a few weeks, you need to gradually transition to your new, more financially responsible lifestyle.
In “ Save More Money Using 5 Fun Tricks in 2019,” we outline several ways that you can slowly add fuel to your savings strategy. One is known as the “52-week savings challenge.”
The idea is simple: Each week, save an amount of money based on the week of the year. So, the first week of the year, you put $1 aside; the second week, it’s $2; and the last week of the year, you save $52.
Obviously, you’ll need to supercharge this strategy if you hope to reach your goal in 15 years. But any step in the right direction is a good one. As the well-worn axiom goes, “A journey of 1,000 miles begins with a single step.”
If you are getting a late start, check out “Ask Stacy: How Do I Invest for Retirement Without Risk?” In this video, Stacy offers tips to investors in their 60s who are trying to build a nest egg while earning “decent returns without indecent risk.”
The idea is simple: Each week, save an amount of money based on the week of the year. So, the first week of the year, you put $1 aside; the second week, it's $2; and the last week of the year, you save $52. Obviously, you'll need to supercharge this strategy if you hope to reach your goal in 15 years.
“The primary levers to accumulate $500,000 in 10 years are investing more, spending less in retirement, or delaying retirement (including part-time work). Ten years allows for compounding to work in your favor. This goal requires careful planning and long-term strategy, not quick fixes.
But in order to be a millionaire via investing in 15 years, you'd only have to invest $43,000 per year (assuming a 6% real rate of return, which accounts for inflation). I know, I know – only $43,000 per year. No big deal. *From this point forward, the average real rate of return we'll be assuming is 6%.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
Get a Part-Time Job or Side Hustle. If you're contemplating retirement with no savings, then you may need to find ways to make more money. Getting a part-time job or starting a side hustle are two ways to earn money in your spare time without being locked into a full-time position.
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
Bottom Line. With $500,000 on hand, several investment options open up to you. Just a few of the strongest include a safe, but typically profitable, index fund, investing in or being an entrepreneur, buying real estate or seeking out hedge funds and private equity.
The point is that if you earned $120,000 per year for the past 35 years, thanks to the annual maximum taxable wage limits, the maximum Social Security benefit you could get at full retirement age is $2,687.
Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
If you were to place $500,000 in a high-yield savings account with a 2.15% APY and wait one year, you will have earned $10,750 in interest. This rate is likely insufficient to keep up with annual inflation, which means your money will become less valuable at a higher rate than when it's accruing interest.
Investing $1,000 a month for 20 years would leave you with around $687,306. The specific amount you end up with depends on your returns -- the S&P 500 has averaged 10% returns over the last 50 years. The more you invest (and the earlier), the more you can take advantage of compound growth.
If you invested $500 a month for 10 years and earned a 4% rate of return, you'd have $73,625 today. If you invested $500 a month for 10 years and earned a 6% rate of return, you'd have $81,940 today. If you invested $500 a month for 10 years and earned an 8% rate of return, you'd have $91,473 today.
$500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income.
Introduction: My name is Greg Kuvalis, I am a witty, spotless, beautiful, charming, delightful, thankful, beautiful person who loves writing and wants to share my knowledge and understanding with you.
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