I Want to be a Millionaire When I Retire!

June 11th, 2008 at 08:06am Kim S. Cady

  Kim Cady 

 When I started working with retirement plans over 20 years ago, this was a common statement made by employees of newly developed employer sponsored retirement plans.  While it was certainly a reasonable and obtainable goal for saving-conscious plan participants back then, a million dollar retirement plan goal today might not be enough.  With costs, spending habits, and life expectancy increasing, our accumulation at retirement may need to be larger in order to last longer.   A more appropriate statement today would be “I want to be able to retire!”  What is that going to take?  Well, for married couples beginning their savings plan at age 35 they would need to save 10.4% of their annual income between now and age 65 in order to accumulate enough to provide a comfortable living for 20 years into retirement.   (Did you know that, according to statistics, being married adds a few years to your life expectancy!)  This accumulation amounts to $1,403,542* during that 30 year savings period.  What happens if they live into their 90s?  

One statement that has not changed over the years is “start saving as soon as you can.”  This requires a lot of discipline considering in our early years we are faced with many challenges – a home purchase; starting a family; career building; etc. but the payoff can be very rewarding.  If we changed the example above to a married couple starting their plan at age 25, they would only need to save 5% (less than half of the 35 year old neighbors) of their yearly income to accumulate a sufficient nest egg at age 65 ($1,897,119*).  This couple has almost 2 million in plan assets, but don’t forget, it’s only going to get them to age 85; they’ll need much more than that if they live longer. 

If you are fortunate to work for a company that matches a portion of your deferrals or provides other company contributions, your personal savings could be scaled back or you could enjoy greater spending in retirement.  However, you would never want to contribute less than what the company is willing to match; that’s like finding a twenty dollar bill on your doorstep each week and letting it blow away!    

* Household income of $70,000; anticipated inflation of 3%; income replacement at retirement = 75%; investment return during accumulation period of 10%; and an investment return during spending period of 8%.  The accumulation does not include social security benefits.

Entry Filed under: Retirement Planning