Education about investing for retirement does not happen soon enough, if ever for many people. The math of retirement investing is simple, so simple that if educated early enough on the subject, more Americans could live comfortably in retirement. Saving $1 million is very attainable, this article explores how.
by Christian Scully
When I was growing up there was never any talk of retirement. Retirement was a far off place where I knew something called Social Security existed and that employees were taxed now in order to ensure monthly payments later. Other than that, there was no discussion of retirement accounts, what purpose they served and how they worked, or what the proper steps were to ensure a comfortable lifestyle after working year were over.
I knew the word millionaire, and that was a magical word. It definitely didn't feel a real possibility, but I knew millionaires existed and as I got older I could certainly take a guess at who might be a millionaire.
Though I'm almost certain many of my guesses would have been accurate, I've come to learn that you never really know what the state of someone's finances are behind the curtain. When we began our personal financial freedom journey I read a frequently recommended book, "The Millionaire Next Door". The author surveyed and compiled data on millionaires in the United States and created a profile with simple, easily copied attributes that lead to their financial success. It revealed to me the lifestyle differences between appearing rich and truly being wealthy. I also highly recommend this book to everyone to define a realistic lifestyle target for growing wealth, you can find this book here.
The average 55 to 74 year old in the United States has at least $408,000 in retirement savings, with the median savings of at least $134,000 (See this article for more stats).
We can probably assume that a small percentage of very high wealth households are pulling that average up significantly, so noting the median is important for context.
Even though the purchasing power of $1 million has decreased since I was a kid and will continue to decrease all the way till I am 65 and beyond due to inflation, $1 million still is viewed as a significant amount of money, often unrealistic to obtain.
Not until we began our journey to a better life did we start to learn the simple math of compound interest.
Compound interest is simple. And it is amazing.
If every kid learned this concept and were motivated to implement it by the age of 20, with discipline and patience, theoretically every retiree would eventually be able to live comfortably, with the funds to cover health and living expenses as needed. The problem is that this is not taught in schools, and only wealthy families know and share this information early on.
Beginning at age 20, investing just $115 per month in a low-cost index fund tracking the S&P 500 would result in just over $1 million by age 65.
This is very simple math just to show the concept and potential of starting early and investing regularly. It does not take into account inflation. You would have to increase your investments over time to keep up with the rate of inflation to ensure that your money would be worth as much in retirement as it is today. But more than likely you would be able to afford to stash away more than this over the course of your career anyways.
But the point is simple and clear: Invest early and invest often. Live below your means in order to invest more money early.
You don't need to be an experienced investor. You don't need to be an expert in finance. You don't even need to earn six figures (assuming your not living in an expensive city). You just need to start early with whatever amount you can afford, and increase that amount over time and you will have a more secure financial future than the vast majority of Americans.
+ Better Tip
By thinking of our investments like a bill we need to pay every month, we are able to make sure that those "bills" get paid first. Before we see if there is room in the budget for anything frivolous, our bills and investment accounts are paid, ensuring that we are always building for our future.
We set our retirement funds to automatic deposits. It is an automatic bill that gets paid every month, along with our cellphone bill, mortgages, utilities, etc. We pay everyone else on time every month, so why not treat our future the same way? Our Betterment accounts make automatic deposits super easy.
Some months we may need to recalculate our deposits if our earned income is lower or higher. But we believe developing the regular habit of investing, even if it means you can only afford $25 each month, is going to go a long way to funding your better life.
Real Estate + Money
Thoughts, ideas, lessons-learned, inspiration, how-tos and more from a journey in small business, to owning and investing in real estate, helping borrowers navigate the mortgage process as a licensed loan originator, in an ongoing pursuit to fund the life and retirement that is chosen, not accepted.