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Will one million dollars be enough for retirement?

Photo of rolled up one hundred dollar bills. Image Credit: Pictures of Money, via Flickr/CC.
For retirement, you’ll need a good nest egg. Image Credit: Pictures of Money, via Flickr/CC.

I have been thinking a lot about if I will have enough time and money to do all the things I would like to in this life.

I consider myself lucky when considering the opportunities I have had thus far. I was born in America, I have a graduate-level education, I work at a prestigious institution with wonderful people who care about what they are working on, and have a life filled with family and friends.

Despite great opportunities, life presents challenges and expenses – which can result in significant uncertainty. Managing what needs to be done now and in the next few weeks or months is important. But, what about making sure that there are conditions and finances available that will promote a secure future?

Many Americans believe that a comfortable retirement lifestyle means having a minimum savings of $100,000 to $1 million (U.S.) – according to an AP-CNBC poll. Yet, few feel confident that they will ever succeed in accumulating such wealth.

What does a comfortable retirement lifestyle mean? Does it include the cost of housing, food, transportation, health care, and the ability to lend support to your family should an emergency arise?

Normal retirement ages vary by country. However, it would appear that right now most Americans are retiring in their mid to late-sixties. The U.S. Congress’s most recent adjustment to the U.S. specifications for full retirement age was made in the 1983 Social Security Amendments. The full retirement age for people born after 1959 in the United States was set at 67 years. The amendment cited improvements in health and longer life span for Americans. I suspect that the normal retirement age will trend higher as Americans in generations X, Y, and Z reach the later part of their lives.

Many young Americans have substantial debt – which impacts their ability to save for the future. Most college students are graduating with at least $20,000 in debt. This is in addition to average $3,173 in credit card debt that they carried as undergraduates.

How long would it take for a young American to save $1 million (U.S.) for a “comfortable retirement” lifestyle? We can estimate monthly savings goals required for a million dollar retirement by using the calculator. The following estimates are based on an initial deposit of $0 (because most young Americans do not have $10,000 available to start off their retirement fund), an annual return of 5%, and a 3% inflation rate.

Age You Start SavingMonthly Deposit RequiredYears to Retirement at 67 Years of AgeGoalAdjusted Value – Due to Inflation, Your Money Will Be Worth This Much in Today’s Dollars

As you can see, a recent college graduate’s retirement fund would be worth a mere $169,733 even after saving $600 each month for 42 years. This amount would hardly yield enough to cover annual expenses for the 15 to 30 years you live following retirement at 67 years of age. To have a net value of $1 million after adjustment for inflation we would have to save a lot more each month.

Age You Start SavingMonthly Deposit RequiredYears to Retirement at 67 Years of AgeGoalAdjusted Value – Due to Inflation, Your Money Will Be Worth This Much in Today’s Dollars

It is kind of terrifying when you consider the income and lifestyle required right now in order to enjoy a comfortable retirement in the future. Further, the above calculations and targets don’t take into account the other things that come up in life including buying a car, purchasing your first home, having a child, having pets, developing a hobby, or sending your child to school and college.

The above numbers assume the most conservative investment strategies. Investing in stocks or using a Roth IRA may yield a higher return over time. Still, you have to begin saving large amounts each month now if you want to have a reliable future.

Do your spending habits, salary, and lifestyles support this type of savings plan? Or, would you have to make significant changes in order to enjoy a better life in your post retirement years?

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