Before we get into HOW you might be able to save $4 million by the time you retire, let’s back up and determine this:
Do you NEED to save $4 million for retirement?
The amount of money needed for retirement is different for everyone. For example, some people have pensions, which means they have a guaranteed income source when they retire. This most likely means that you won’t personally need to save as much for retirement to replace your pre-retirement income. (Unfortunately, pensions are quickly becoming a thing of the past. The younger you are, the greater the chances that you don’t have a pension.)
As with all financial planning, it’s most important to determine what the right plan is for YOU.
When we work with a client, we take a top-down approach to planning. Here are a few things we look at:
- How much are you spending today?
- Are there expenses that you will be reducing in retirement (such as those related to your children)?
- Will you be carrying a mortgage?
- Do you want to travel in retirement?
We also take a look at medical expenses, purchasing a vehicle every so often, and where you will be living. And last but certainly not least, we look at tax strategies.
What if you want to save $4 million for retirement?
When you hear a big number like $4 million, it can be intimidating. It also depends on your starting point – the younger you start the better. Your investment return is also important in calculating number. Here are a couple examples:
Age 30 retiring at 65 with 8% return would need to save $1,743 per month.
Age 30 retiring at 65 with 4% return would need to save $4,378 per month.
If you waited just ten years…
Age 40 retiring at 65 with 8% return would need to save $4,206 per month.
If this seems unattainable, start with what you can today and increase your contribution every time you get a pay increase or come into some unexpected money.
Remember that financial planning is a unique journey for everyone; you might not need that $4 million. This is why it’s important to discuss your future and your options with an impartial third party who can help you make the right decisions.