Tag Archives: retirement

The Ideal Amount of Savings at Age 30

The Ideal Amount of Savings at Age 30I love looking really far down the road. I love projecting account balances in the future, and I love the idea of compounding interest.

I also like making money today, I like having the ability to spend money on the things I want, and I have no problem paying a little extra for things if I can afford it. I hate stress, so if a few dollars saves me from worrying, it’s money well spent.

So I thought about, in order to retire comfortably at age 66, I’d need $4 million. Why that much? Because it’s such a huge number, that even with inflation and everything, there’s no way I could ever need more than that. It’s very possible I won’t need that much. But I know that in 40 years, if I have $4 million in savings, there’s no way I won’t have enough money for everything I’ll want.

So working backwards, with an 8% rate of return, I’d need $250,000 in savings by age 30 to hit that mark. If I earn 8% every year, I’d have $367,000 at age 35, $539,000 at age 40, $1.16 million at age 50, $2.5 million at age 60, and just about $4 million at age 66. The “normal” retirement age will probably increase in the next 40 years, so I’ll still be retiring early at age 66.

$250,000 is not an easy target to hit by 30, but the benefits are enormous.

There would be no need to save a dime the rest of your life. Once retirement is fully funded, there’s no need to save extra. As long as you earn as much as you spend, you can spend that money however you want. No more saving 20% for retirement, you can focus on education, the house, travel, or whatever else you’d like.

Instead of saving for huge goals, savings can go toward family vacations, education, and some of life’s pleasures. $250,000 is my goal for 30, and then that extra 20% (or more ideally, 60%) of income that goes to savings can go toward a house or kids.

Readers, what do you think? Is $250,000 a realistic goal? Are the benefits enormous enough to make it worth it?

How Much Do You Need To Save To Retire 1 Day Early?

invest
by turbotoddi

Retirement calculators out there offering to calculate how much you’ll need in retirement. I love thinking about retirement (even if it is 40+ years away), and am saving almost 50% of my after-tax income, a large portion of that in my Roth IRA and Individual 401(k).

Thinking in the long-term can be pretty depressing, and even looking at the ideal amount of savings by age 30 can be hard for some people to handle, so I got to thinking: how much additional money I would need to invest this year in order to retire one day early?

Assumptions

I’m making several assumptions. The first is that at the current rate, I would be saving enough to retire at age 65. Additionally, I’m assuming I would need $100,000 a year in retirement, which seems reasonable.. Finally, I would earn 8% on my investments until I reached retirement. I do not account for inflation in this calculation. Based on this, it seems that in order to take out $100,000 a year, I’d need about $274 a day.

I Need to Save $12.61 Today To Retire 1 Day Early

That means that I would be able to retire a day early if I saved an extra $274 for my 65 year old self, right? I’m 25, so I have 40 years ahead of me. By plugging all this into a time value of money calculator, I’d have to put away $12.61 today in order to have $274 when I’m 65 and be able to retire one day early.

Not terrible, but what if I only needed $75,000 a year in retirement? It drops to just $9.46

Try It Yourself

How much do you have to save to retire a day early?

If you want to check out how much you’ll need to save today to retire 1 day early, here’s a link to the spreadsheet. Feel free to play with the numbers for yourself!

If you bring your lunch to work one or twice this week instead of going out to lunch, that could mean you’ll be golfing one day earlier!

The Best Investments for People in Their 20s

As a young professional, I talk to friends a lot about our different investment options, not only for retirement, but for short-term and long-term savings, too.

Many people think that they should invest a brokerage account if they want to invest, but for most people, there are better options and a very clear hierarchy that should be followed to be sure you’re taking advantage of all the perks our many investment vehicles offer.

Everyone has a different mix of investment options, but it’s very easy to follow. If you don’t have a type of account mentioned, that’s OK. Just move on to the next option.

Investment Vehicles

Most of have the opportunities to invest through 401(k)s and IRAs as well as non-tax-advantage accounts, but not everyone knows which ones are best for different situations.

The most common situation for young people is the choice of 401(k), IRA (Roth and Traditional), or a regular brokerage account.

If you need a refresher course, check out the explanation of each of the types of retirement accounts. The only account we’ll discuss that’s not included in that article is the standard brokerage account. This is the type of investing account that is promoted most, so think E*TRADE.

As opposed to all the other investing accounts, which are retirement accounts, a standard brokerage account is not targeted toward people looking to invest for retirement (but you can still invest in one with an eye toward retirement). There are no tax advantages to this account, but for those who want to save for other goals, this could be the right place to do it. All earnings are taxed, but you can always withdraw both contributions and earnings with no penalties.

Where Should 20 Somethings Be Putting Their Investments?

So how should young people invest?

First, start with any 401(k) contributions that would earn a match through your employer. This is just free money, so if you get a match on up to 5% of your salary, contribute 5% of your salary. They’ll match with 5%, so you’re essentially getting a 5% for free! This is definitely your first step.

Next, invest in your Roth IRA. This account has far more flexibility than a 401(k), and your contributions (but not your earnings) can be withdrawn at any time with no penalty. Contribute up to the maximum, which is $5,500 in 2015 as long as you’re under the income limit of $121,000 as an individual or $181,000 as a married couple (and you will be if you’re just starting out).

Once your Roth IRA is fully funded, keep funding the 401(k) through your employer if you are eligible, up to the maximum $18,000 for 2015. You might as well take advantage of any tax deferred savings incentives while you can!

Finally, you have my permission to invest in a regular brokerage account. This should be the last option because there are no tax advantages of this type of account.

If you’ve got enough to invest that you make it to the brokerage account, you’re doing a great job. But can you beat my savings goal?