You’ve heard the refrain a million times: start saving for retirement early! But it’s hard to think about leaving the workforce when you’ve barely entered it. Or when, in the case of many millennials, you haven’t quite hit your earning stride and are also trying to buy a home, start a family, pay off student loans, start a business, or… well, live!
Competing priorities make saving difficult at any age, but especially in the ages between 22 and 43 when you likely still have children at home, aging parents who may need your help, and a career and spouse to tend to.
But time waits for no one, so the sooner you get started, the better. But you don’t just have to take our word for it, we’ll show you.
Take a look at the following chart put together by The Money Guy that shows the lump sum investment amount you would need to have invested by each age to be a millionaire by age 65. In other words, if you already have the specified amount saved (as listed by your age), you are on track to be a millionaire by age 65 without saving another dime.
Want your newborn to be a millionaire? Start with an initial investment of $1,544. But if you’re starting at 35 (because let’s face it, your twenties were crazy and you finally figured out what you want to do when you grow up), you’ll need $78,787. Starting at 25? You’ll need $22,708.
The takeaway: The older you get, the more aggressive your initial investment must be.
You May Not Have a Lot of Money, But You Do Have Time
If you’re in your twenties and you’re reading this article, you may not feel like you have much money, but you DO have one of the most important assets—time. So if you have a best friend, tell them to get in the backseat, because we’re picking up compound interest and it’s riding shotgun!
No Lump Sum? No Problem
It’s unlikely that you have $20k-$100k laying around. So, let’s take a monthly view. But in order to calculate your monthly savings, we’ll need to make a couple assumptions about rate of return, inflation, and your increase in contributions each year.
According to The Making of a Millionaire, if we assume you “start with $0 in savings and receive an annual return on investments of 7% […] and your monthly contributions increase each year by 2% to keep up with inflation,” this is how much you’ll need to save each month to reach millionaire status by age 65:
Monthly Savings Required to Become a Millionaire by 65
- Starting at age 20, you would need to save $204 per month
- Starting at age 25, you would need to save $298 per month
- Starting at age 30, you would need to save $443 per month
- Starting at age 35, you would need to save $670 per month
- Starting at age 40, you would need to save $1,030 per month
- Starting at age 45, you would need to save $1,650 per month
- Starting at age 50, you would need to save $2,795 per month
- Starting at age 55, you would need to save $5,310 per month
- Starting at age 60, you would need to save $13,500 per month
- Starting at age 64 (It’s never too late?), you would need to save $85,000 per month
Of course, the rate of inflation and your rate of return can affect these numbers, but one thing should be abundantly clear = the sooner you start saving, the more stable your financial life will be (with less work, effort, and missed income from you).
So, while your funds may seem tight now, consider how different putting $204 away each month feels from $670 or even $1,000! Why work harder than you have to when compound interest can do the heavy lifting for you?
Is $1 Million Enough?
Inflation is a cruel beast and can erode purchasing power quicker than you think. Just think about $20—about how far that gets you today versus how far it used to get you in middle school when your parents dropped you off to meet your friends at the movies (because where else can 13 year old’s go after 9pm alone?).
Today, if anything costs less than $100, I consider myself lucky. Just imagine what $100 will feel like in 20 years. Now multiply that by 10 and imagine having to sock all of that away because you YOLO’d one too many times in your early years. You can save yourself a ton of future suffering by doing the hard things early and often.
Investing is kind of like rock tumbling. Once you start the process, it’s clunky and a little awkward. You might miss that extra few hundred dollars at first. But, you get used to it. It becomes a habit, a seamless part of your financial behavior. You may even get excited seeing your investments grow and be inclined to contribute more in the months where it’s feasible.
As the Making of a Millionaire author includes, “If you do what is easy, your life will be hard. If you do what is hard, your life will be easy.”
So do the hard things now. They won’t feel so hard after a few pass throughs, and you’ll suffer a lot less down the road.