Author Topic: How to Save $1 Million Without Breaking a Sweat  (Read 3816 times)

grmagne

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How to Save $1 Million Without Breaking a Sweat
« on: November 07, 2013, 04:45:36 PM »
Here's a Yahoo article explaining how long it takes to save $1,000,000 at various rates of savings and a 7% rate of return. That's the retirement target if you're planning to retire on $40,000/year. Since this is a Yahoo Finance article, you can expect a fair bit of cynicism and whining in the user comments.

http://finance.yahoo.com/news/save-1-million-without-breaking-144927888.html

« Last Edit: November 07, 2013, 04:50:43 PM by grmagne »

oldtoyota

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Re: How to Save $1 Million Without Breaking a Sweat
« Reply #1 on: November 07, 2013, 07:44:10 PM »
I wish they included higher monthly contributions in their list. However, I can understand why they would not. They did not want their average reader to faint!


grmagne

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Re: How to Save $1 Million Without Breaking a Sweat
« Reply #2 on: November 08, 2013, 09:14:55 AM »
I wish they included higher monthly contributions in their list. However, I can understand why they would not. They did not want their average reader to faint!

Rounded to the nearest year, here are the number of years required to reach $1,000,000 at more impressive levels of commitment. Itís noteworthy that the smaller contributions are more sensitive to interest rates when targeting a specific dollar amount (or euro amount). When you make large contributions youíre guaranteed to reach your target fairly quickly, and bad luck in the markets will only slow you down a bit. However when youíre investing small amounts over very large time horizons, youíre relying heavily on the magic of compound interest and the rates of return will have an enormous impact on how quickly you reach your target.

5% Rate of Return
$500/month   = 45 years
$1000/month = 33 years
$1500/month = 27 years
$2000/month = 23 years
$2500/month = 20 years
$3000/month = 18 years
$3500/month = 16 years
$4000/month = 14 years

7% Rate of Return
$500/month   = 37 years
$1000/month = 28 years
$1500/month = 23 years
$2000/month = 20 years
$2500/month = 18 years
$3000/month = 16 years
$3500/month = 14 years
$4000/month = 13 years

9% Rate of Return
$500/month   = 32 years
$1000/month = 25 years
$1500/month = 21 years
$2000/month = 18 years
$2500/month = 16 years
$3000/month = 14 years
$3500/month = 13 years
$4000/month = 12 years

grmagne

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Re: How to Save $1 Million Without Breaking a Sweat
« Reply #3 on: November 08, 2013, 09:52:45 AM »
Also, this article just uses the simplest of formulas and didnít factor cost of living or salary growth into the equation. Itís interesting as a guideline but wouldnít be realistic for long-term scenarios. For example, an eighteen year-old investor in 1953 hoping to accumulate $50,000 by the year 2013 would have contributed $5/month and finally reached the target this year (at the age of 78). Unfortunately, $50,000 doesnít go very far any more, which would have seemed counter-intuitive to an investor in 1953 just as itís counter-intuitive to a teenager today that $1,000,000 wonít buy very much in 2073 (the Yahoo article above shows that $100/month will allow you to reach $1 million by 2073, but it wonít be worth as much as youíd expect).

The key is that if youíre targeting a specific amount for a projected retirement thatís decades away then you donít want to get too complacent. For example, investing $2,000/month now will allow you to reach $1 million around the year 2033, but it might not be enough to retire on. But donít worry, your salary will also grow tremendously before you retire and your contributions will grow accordingly.  So youíll still meet your retirement goals, and do so with a much higher retirement stash than originally anticipated.

Itís probably best to use the targets in this article http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/, which shows that saving a percentage of your salary will give you a very solid estimate of when you can retire without having to imagine or worry about how much inflation will erode your money over the decades to come.