As we meet with clients and prospective clients on a regular basis, one of the questions we are asked is, “How much money will I need to retire?” Often, it’s even just, “Do I have enough money to retire?”
We cannot even give a good answer to these questions until we get to know someone better. Every single client and their circumstances are unique, and we approach every client as a one-size-fits-one scenario.
However, what we can say in general is that you will likely need a sizeable portfolio in order to retire and be able to provide for yourself and your family throughout a retirement that may last 20–30 years. For many clients, a portfolio today of $1.2 million to $2 million may provide a reasonable starting point for supporting a fairly “normal” lifestyle (if there is such a thing). This can vary significantly depending on personal circumstances, spending needs, and other sources of income.
So how in the world do I save over a million dollars?
The answer to that question is to save money early, consistently, and grow it over time. You really need the power of compounding that long-term investing can provide.
Take, for instance, the historical long-term growth of U.S. stocks, which has at times averaged around 7.25% per year over extended periods. At that rate, invested dollars could roughly double approximately every 10 years, although actual returns will vary and may be lower.
So, if you saved and invested $100,000 by age 30, it could potentially grow to $200,000 by age 40; $400,000 by age 50; $800,000 by age 60; and approximately $1.6 million by age 70, assuming that rate of return and no additional contributions after age 30. Compounding can have a meaningful impact over time.
Keys to Investing Success Over the Long Term
Over the years, we have observed that some of the keys here are:
1. Start young and invest meaningfully early in your life.
2. Be thoughtful about balancing growth and risk, and avoid the temptation to be overly conservative with your investments if your long-term goal is growth.
3. Automate your investments to help reach your long-term goals.
4. Stay invested and resist the urge to change your investments solely based on the markets going up and down. A diversified portfolio and a long-term perspective can be helpful.
5. Be cautious with annuities and Universal Life/Whole Life type products when evaluating them as part of a long-term financial plan. These products can carry higher fees and may not be the right fit for everyone (in my professional opinion, based on over 25 years of experience). Term insurance policies, often 20–30 years in duration, may be a more efficient option for many people, with the difference available for long-term investing based on individual circumstances and risk tolerance.
6. If you qualify for a ROTH IRA, and/or if your employer offers a ROTH inside your company’s retirement plan, consider contributing as much as you reasonably can there. Investment choices within those accounts should be based on your time horizon, goals, and risk tolerance.
Notes & Disclosures
This material is being provided solely for general educational and informational purposes and should not be construed as personalized investment advice, a solicitation, an offer to sell, or an offer to buy any security or advisory service. The information contained herein is general in nature, is based on assumptions that may not apply in all situations, and is not intended to serve as the primary basis for any investment decision.
Any forward-looking statements, projections, illustrations, or hypothetical examples are provided for explanatory purposes only, are inherently uncertain, and are not representative of actual client experience or results. Past performance is not indicative of future results.
Investing involves substantial risk, including possible loss of principal. Any reference to specific products, asset classes, or planning concepts is for general discussion only and should not be interpreted as a recommendation or endorsement. Readers should consult their own advisers regarding their individual circumstances before acting on any information discussed herein.
truNorth Financial Services, Inc. is a fee-only SEC Registered Investment Advisory (RIA) firm.
