Many people have the goal of retiring as a millionaire, but for some the goal is just a dream due to poor choices. Having a million dollars in liquid assets inside your portfolio is a significant achievement, but one that does not require extraordinary effort if you start early. The key to retiring rich is to set up good saving habits as early in life as possible. The more money you stash away for the future when you are young will lower the total amount you need to invest. Would you rather save a little bit today or be forced to save a lot tomorrow to reach your goals?
The Impact of Saving Early for Retirement
How significant of an impact does getting an early start on retirement saving have on your portfolio?
Let’s look at four different scenarios. Our scenarios will look at various ages to begin saving for
retirement, and all four will assume you earn a 7% return on your investment year in and year out.
While it is unrealistic to expect the same exact results every year, assuming only 7% growth for the life
of your portfolio is likely to be conservative. We will also assume that these investors all want to retire
at age 67 and invest the same annual amount every year on the first day of the year until retirement age.
Saving for Retirement at Age 25
If our investor invests the same amount starting on the first day of turning 25 and invests the last
amount on his 66th birthday, by the time his 67th birthday and retirement age rolls around he will have
had invested for 42 years. If he earns 7% consistently throughout that time, he only needs to invest
$4,035.90 every year to retire with a million dollar portfolio.
Saving for Retirement at Age 35
If our investor invests the same amount starting on the first day of turning 35 and invests the last
amount on his 66th birthday, by the time his 67th birthday and retirement age rolls around he will
have had invested for 32 years. If he earns 7% consistently throughout that time, he needs to invest
$8,408.07 every year to retire with a million dollar portfolio.
Saving for Retirement at Age 45
If our investor invests the same amount starting on the first day of turning 45 and invests the last
amount on his 66th birthday, by the time his 67th birthday and retirement age rolls around he will have
had invested for 22 years. If he earns 7% consistently throughout that time, he needs to come up with
$18,713.93 to invest every year to retire with a million dollar portfolio.
Saving for Retirement at Age 55
If our investor invests the same amount starting on the first day of turning 55 and invests the last
amount on his 66th birthday, by the time his 67th birthday and retirement age rolls around he will have
had invested for 12 years. If he earns 7% consistently throughout that time, he must scramble to make
up for lost time and invest a whopping $49,650.85 every year to retire with a million dollar portfolio.
Total Amount Invested Per Age to Reach Same Goal
You can see that waiting later in life will dramatically increase the amount of money you must save to
retire. But let’s look at how much you will invest in total and how much of your portfolio comes from growth.
Age: 25
Total Amount Contributed: $169,507.80
Contribution Percentage of $1 million: 16.95%
Compound Growth Percentage of $1 million: 83.05%
Age: 35
Total Amount Contributed: $269,058.24
Contribution Percentage of $1 million: 26.91%
Compound Growth Percentage of $1 million: 73.09%
Age: 45
Total Amount Contributed: $411,706.46
Contribution Percentage of $1 million: 41.17%
Compound Growth Percentage of $1 million: 58.83%
Age: 55
Total Amount Contributed: $595,810.18
Contribution Percentage of $1 million: 59.58%
Compound Growth Percentage of $1 million: 40.42%
You could only be required to put in 17% of the total amount needed to retire with a million dollars,
but you must start early in life. Are you willing to do that?