In Search of a Million Dollars

There are different estimates about how much you will need for your retirement. As life expectancy rises you are likely to find it becomes more and more because of the extra years you have to fund. Inevitably the earlier you start to make provision for retirement the better. Compound interest means that the growth you can obtain over a long period, perhaps an entire career, will far outweigh your saving much larger amounts over a much shorter period. You can make excuses for not starting to save for retirement in your 20s because of your student loan guaranteed lending website and perhaps your taking out a car loan. You may regret that later as retirement looms ever larger.

If you have reached middle age and perhaps retirement is less than twenty years away, you face a challenge and whether you can realistically expect to amass a seven figure sum in this relatively short period is open to question. Two things spring to mind immediately:

  • How long are you prepared to work?
  • How seriously are you prepared to save?

An Example

It is perhaps best to do an illustration. If you are earning $90,000 annually with the expectation of yearly increases at say 3% then you have a chance if you are prepared to save 30% of your salary and already have some investments that are doing fairly well. However if you have just played with saving to this stage other than buying a few investments then the chances of your being able to save 30% overnight are minimal, especially if you are paying a mortgage.

The first thing that has to be said is that there is nothing wrong in aiming high. Obviously you will have to expect significant changes in your lifestyle if you are going to make such a significant effort to save. You will have to cut out waste and as is the case of most Americans you may have credit card debt that is incurring a high rate of interest. It may seem strange to say this when your aim is saving but you should borrow, a competitive personal loan at a far lower rate of income. The loan should be used to pay off any card balances and you should resolve not to use your card in the future unless you can pay off the statement balance in full at the end of each monthly period.

The example above, a $90,000 annual salary growing by small increments and perhaps a 6% return on investments annually is realistic. Over a period of 15 years if 15% was saved the total at the end of the period would be approaching $350,000. If the end of the 15 year period corresponds with being in your mid-60s, you can continue to save by deferring retirement. If you retire at 70 and have continued to save at the same rate for 5 further years on top of the 15, then you should have increased your total by around $200,000.

The situation would be much better if you had been saving 20% and at 70 years of age you would not be far short of $750,000.

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There are a couple of extra things that can definitely work in your favor. If you are seeking a projection of the Social Security payments you can expect to receive 15 years hence they would be around $25,000 but if you delayed claiming for the next 5 years they would leap to $36,000.

The other thing that you may benefit from is the equity that you have in any real estate. As mentioned before it may be a significant challenge to save 30% if you are also paying a mortgage but if you can manage 15% as in the example used and you reach the end of your mortgage term, you should have value in your real estate. You can cash that in and if it is a large family property, too big for your needs once the children are grown and gone it makes sense to downsize.

You can make savings in retirement by downsizing or you may decide that you are happy to but all your equity in the bank and get a rental property of a size and in a location of your choice. Some places have far lower living costs than others and though you may be reluctant to leave a familiar neighborhood you need to balance that with the level of comfort you want in retirement.

Don't Get Discouraged

At no point in these years of saving should you get discouraged. Concentrate on saving and if you do not quite make the million you will still be able to point to a significant sum 'in the bank' which should guarantee a long and happy retirement.

You should monitor things every year throughout the 15, and perhaps 20 years to ensure you are working with actual figures. Some elements of your calculations will always be estimates of what will happen in the future but that does not negate the value of the exercise. You have to hope that the Social Security system will still be in place at the level currently available. You have no control over that but over everything else it is up to you.

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Pic February 28 / 2016
You must not make the seven figure target too important.

Pic February 28 / 2016
There may be the odd unexpected bill to settle.