A $1 million nest egg was once thought to be the gold standard in retirement planning, but times have changed. Many people now anticipate spending more than $2 million.
Saving so much money may appear to be a difficult task, but it may require less money than you think. In fact, there is one route that will get you there for as little as $358 a month.
How to Make $2 Million From $358 Per Month
Most people would never be able to save $2 million for retirement on their own, which is why investing is so important. A savings account may only produce a few dollars in interest per year, but if you invest your money, it may increase by more than 30 percent in some years.
Of course, there is a chance that you will lose money. However, the stock market has a strong track record of success. The S& P 500 index has had an average annual return of 9.4 percent over the last 50 years. This can help your money grow far faster than it would in a savings account.
If you got a 10% annual rate of return over 40 years, you’d only need to invest $358 every month to accomplish your $2 million targets. That’s not too awful, but it may not be a viable savings strategy for you.
For starters, there is no assurance of a ten percent annual return. That is why, when planning for retirement, many people use a 5% or 6% estimated annual rate of return. In this manner, even if their money grows slowly, their retirement plans will not be jeopardized.
Another issue with the $358 per month scenario is that you might not have 40 years till retirement. If you have a shorter time period, you will need to save more money each month to attain your objective.
Finally, the only way to tell if you’re saving enough is to build a personalized retirement plan based on your spending patterns and lifestyle.
How to Determine How Much You Need to Save for Retirement
The first step in calculating your retirement needs is to consider how you intend to spend your retirement. You may use your present spending as a baseline, but as you get older, you’ll undoubtedly spend more in some areas and less in others. Try to plan ahead for any large-ticket expenditures you could make in retirement.
Once you have a reasonable estimate of your yearly retirement expenditures, you may add this to your expected life expectancy to calculate your overall retirement costs. Remember to account for inflation. A 3% yearly inflation rate is a decent starting point. A retirement calculator will assist you in doing the arithmetic to determine how much you need to save overall and each month to accomplish your goal.
The next step is to deduct the money you anticipate getting from other sources, such as Social Security, a pension, or a 401(k) match, to determine how much you need to save on your own. Your employer should be able to give you information on your 401(k) match or pension. In addition, by registering my Social Security account, you may estimate your Social Security payment at various ages.
If you discover that you are unable to save as much as you need to each month, you may need to rethink your strategy. Consider delaying retirement for a few months or years to see what effect it will make. Alternatively, you might seek methods to cut your spending right now in order to free up more money for retirement savings.
Set up automated retirement contributions once you’ve decided on a plan you’re comfortable with so you don’t forget to make them. If you are eligible for a 401(k), your company should allow you to send a particular cash amount or percentage of each paycheck to your 401(k) each pay period. In addition, if you have an IRA, you should be able to set up automatic payments from a bank account.
Don’t forget to review your retirement plan every year or two to ensure that everything is on track. If your assets grow faster or slower than expected, or if your retirement goals change, you may need to adapt your savings approach in the future to ensure you have the retirement you desire.