You are 21 years old and did not go to or did not finish college. Many workers without college degrees earn less than $30,000 a year at the start of their careers, but their wages can rise over time. Working 35 hours a week at $15 per hour amounts to earnings of about $2,100 per month or about $25,000 a year.
At this rate, saving about $200 a month is a serious start if you consider that you have 46 years until your official Social Security age. Saving $200 per month for 46 years will come to more than $400,000, but saving more as wages increase with time will help you get to the goal. To generate $1 million after 46 years you will need to save $494 per month.
You are 25 years old, have a college degree, and your salary is $35,000 a year. Thinking that you will see annual raises of 2% in the years ahead is not unrealistic. Saving $500 per month ($6,000 per year) is reasonable, but after 42 years at 5% the savings will only grow to $811,000 or so.
To hit that $1 million savings goal, you are going to have to commit to $616 per month at a 5% annual compounding. If the markets are better than the 5% base, then $500 per month at 5.5% turns into $924,000. And at a rate of 6% compounded, your savings will reach $1,055,000 after 42 years.
Now imagine you are 28 years old and getting a slower start to saving for retirement. If you are making the same $35,000 salary with the same 2% raise expectations, you have 39 years until retirement age. Saving $500 per month will feel harder because you haven’t been doing it, but at 5% compounded only grows to $684,000 after 39 years.
With a compounded rate of 5.5% on that $500 per month the savings will be worth $771,000 by the time you’re 67, and with compounded return of 6% the savings will grow to about $870,000. To hit $1 million with no prior savings and 5% compounded is going to require a monthly contribution of $730, or about $8,760 per year.
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