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While young people can have a variety of financial goals, like buying a car or saving for a house, experts agree thinking about early retirement should also be a priority. And the earlier you start, the easier it will be for you to become a millionaire.
All it takes is investing $1,000 a month throughout your career to possibly become a millionaire, according to CNBC.
And according to Vanguard, the secret to reaching the million mark isn’t so difficult: it’s time.
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If you give your savings enough time to grow, you’ll only need relatively small investments — made consistently — to end up with a sizable balance, Vanguard explains on its website.
“Because compounding is so powerful, starting early gives you more flexibility later in life,” according to Vanguard.
It should be noted that only half of Americans have calculated how much they need to save for retirement, according to the Department of Labor (DOL). Moreover, in 2020, more than a quarter of private sector workers with access to a defined contribution plan – such as a 401(k) plan – did not participate. To put that into context, the average American spends about 20 years in retirement, so saving money is a habit best started early, the DOL recommends.
“Retirement is expensive. Experts estimate that you will need 70% to 90% of your pre-retirement income to maintain your standard of living when you stop working,” according to the DOL.
CNBC dug deeper to estimate exactly how much investing an extra $1,000 a month now will be when you’re ready to retire, assuming you put your money in a retirement account, earn an estimated 4% return on your investments and you retire at age 67. CNBC also warns that the calculations don’t take into account fees, taxes, or “any curve life can throw at you, so plan accordingly.”
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Here’s the breakdown, according to CNBC.
If you start saving $1,000 a month at age 20, you’ll grow to $1.6 million when you retire in 47 years. For people who start saving at this age, monthly payments add up to $560,000: the early start combined with the estimated 4% over the years means their investments have skyrocketed by almost $1. 1 million.
“Starting younger lets you tap into the power of compound interest,” CNBC says. “That means you get returns on the money you invest, and better yet, returns on your returns.”
If you wait until you’re 30, you’ll still make over a million dollars. By that age, you will have set aside $444,000 and will receive almost $600,000 in earned interest.
“There is a trend, the longer you wait, the more money it will cost you in the long run. If you start making those savings at age 40, they will reach $500,000 for your retirement, with over $300,000 set aside and $250,000 returned. And if you start at age 50, you’ll retire with $300,000 at age 67, having invested $204,000 and recouping $90,000 in interest.
“So if you’re wondering when you should start saving, it’s now,” CNBC says.
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