I always like to know if I’m on the right path and on schedule with my investing and saving. I normally keep a spreadsheet of what my net worth needs to be at various points along my journey. I use this as one of many tools to see if I’m making good decisions about saving, investing and avoiding purchases. We each have a unique number that we are striving for. Certainly, for a long time, one million dollars has been the “magic” number. That’s not quite as magical as it once was but it’s safe to say that if you amass $1 million dollars at any age, you are doing much better than the majority of others. So what amount of money do you need to have at each age? Here’s a graph from age 21 up to age 65 with the dollar amounts you want to strive for at each age. You can reach this number in multiple ways. You could save more or compound your existing assets by changing your investment strategies. You’ll find that some years you miss the mark and others you exceed it. A changing market certainly will take it’s toll.
| Age 21: $0.00 | Age 32: $47606 | Age 43: $158606 | Age 54: $417418 |
| Age 22: $2860 | Age 33: $54274 | Age 44: $174154 | Age 55: $453672 |
| Age 23: $5948 | Age 34: $61476 | Age 45: $190947 | Age 56: $492826 |
| Age 24: $9284 | Age 35: $69254 | Age 46: $209082 | Age 57: $535112 |
| Age 25: $12887 | Age 36: $77655 | Age 47: $228669 | Age 58: $580781 |
| Age 26: $16778 | Age 37: $86727 | Age 48: $249823 | Age 59: $630103 |
| Age 27: $20980 | Age 38: $96525 | Age 49: $272669 | Age 60: $683371 |
| Age 28: $25519 | Age 39: $107107 | Age 50: $297342 | Age 61: $740901 |
| Age 29: $30420 | Age 40: $118536 | Age 51: $323989 | Age 62: $803033 |
| Age 30: $35714 | Age 41: $130879 | Age 52: $352769 | Age 63: $870136 |
| Age 31: $41431 | Age 42: $144209 | Age 53: $383850 | Age 64: $942607 |
Age 65: 1,020,875
Now for the assumptions:
-You invest $2500 per year over your entire life
-You earn an 8% interest rate every year (In practice, some years will be better, some will be worse)
I confess that I love playing with numbers like this. Using this tool, I can quickly glance at my investment balances and compare that to the chart above to make sure I’m on track. I actually use a different set of numbers based on my income and my current balances to see where I will be if I keep up at the same rate that I’m investing today. Since I know I want to have much more than $1 million by the time I retire, I’ve got a more aggressive age vs net worth chart.
Want to create your own chart? Go to:
http://www.money-zine.com/Calculators/Retirement-Calculators/401k-Savings-Calculator/
and punch in your own numbers!
I wonder if that “1 million rule” is for one person or a couple. If I expect to be still happily married by the time I retire, should I aim for 2 million instead? Or, if I expect to be single, should I aim for only $500k?
Yep, definately dependent on your age. I am 27 and married with 2 kids. If I have $1mm when I am 65, it will be a significant failure.
$1mm give you $40k of yearly income. But with inflation, that is less than $20k in 2007 dollars. Thats not much of a retirement.
Thanks to the magic of inflation, I think the scale is heavily dependent on age. The scale above looks like it would work well for someone nearing retirement, but I’m 38. I don’t think $1,020,875 is anywhere close to what I’ll need to have a really good retirement (yep, very subjective, I know) by age 65. My magic number is about 3.5 to 4x that, not including real estate.
Yes, one million today (or yesterday) isn’t one million tomorrow. I think this is one view. It’s definitely worth figuring out how much you REALLY need by the time you retire and then making plans to meet that goal.
I’m guessing you don’t really meant Net Worth, which would include real estate, personal property, etc. It sounds more like you mean retirement savings. Dang! I was doing OK if you meant Net Worth. Otherwise, not so much!
Thanks for the calculator link… I do the “by age” calculation all the time on excel… It can take forever that way. I dreamed of this calculator LOL
Great blog by the way :)
8% interest a year? You must be crazy….
I love how they always say you will have a million by 65 with an 8% return… UMMM whne was the last time you saw 8% at any bank>?? its been YEARS! I think in a cd account Ive been getting 3-4% some even less. I remember back in the late 80s -90s I was getting 7%! but its been low for the last 5 years… maybe even 8 yrs.. So Im not making much as far as intrest,, BUT the best thing is to do some savings in the bank 50k at least.. then do a cd account… then do some 401k %…
cant just rely on a 401k. if the world goes to crap you’ll lose it all. just like the RE bust a few yrs ago. I know some guys who lost over 150k in that bust. scarey!
8% is totally reasonable if you’re looking at this on a grand scale. 8% growth is what the stock market has averaged over its entirety. Sure, if you invest in an index fund for 1-2 years, you may not hit that 8% growth, and may even see negative growth in some years (2007-2008, etc..), but if you invest over the 30-40 years that this article is suggesting, then 8% per year is what should be expected.