If you save 10% of your pay annually with an 8% annual return in the market for 30 years, you could end up with more than 10 times your pay in retirement savings.
Let me walk you through this scenario so you can see just how easy it is. Let’s say you’re 25 years old, making $50,000 a year. If you save 10% of your pay, or $5,000 annually, and earn a return on your investment of 8% in the stock market, you will end up with approximately $596,500.
Save 10% and Earn 10%
Historically the S&P 500 has averaged 10% annually since 1928. So achieving an annual return of 8% is very feasible. If you were able to achieve an annual 10% return, you would end up with $886,500 after 30 years instead of $596,500.
Pretty nice chuck of money to end up with after 30 years, and all by only saving $417/month for 30 years. Now this number doesn’t account for any salary or savings increases. Both are sure to increase, at least marginally.
Looking for One Million Dollars?
If you increased your savings monthly from $417 to $517, you would end up with just over $1,000,000 (assuming a 10% annual return). If you want to make a safer, more conservative estimate with an 8% return, you would need to save $750 a month to reach one million dollars after 30 years.
All this goes to show that you don’t have to save a fortune to end with one. The power of compounding interest can work wonders if you just save, and invest into the market.