Here’s the assumptions for my example:
- Retirement age: 65
- End of retirement age: 83
- Inflation: 3%
- Start of career age: 21
- Annual salary at age 21: $50,000
- Annual salary growth: 4%
- Desired retirement monthly income, today’s value: $3,000 (or $36,000 yearly)
Using the above assumptions, at 3% inflation, the inflation adjusted annual amount required at age 65 will be $132,172. And the total amount required from age 65 to 83 will be $3,319,754.
In order to achieve this desired retirement amount, a reasonable portion of 20% of annual income is required to be put aside at age 21. If one is able to continuously allocate this portion till age 64, and invest/save it at a constant annual growth of 6%, he will achieve $3,905,552, which will be sufficient to achieve a desired retirement fund of $3,319,754.
What if you are able to invest at a constant annual growth of 8%? The amount becomes $6,463,653!
Nonetheless, 6% is a reasonable target and there’s many investment channels in the market to help investors achieve this amount. However, it is important to take note of the investment fineprints and understand the charges involved before investing. It is also important to understand the potential risks involved.
The example above shows that even to achieve $3.9million for retirement is not rocket science and impossible like many people said. The key is to start as early as possible, be focus and discipline.