For my example, you need to fulfill the below assumptions:
- Start of career age: 21
- Start of career monthly income: $4,000
- Annual bonus: 2 months
- Annual salary increment: 4%
If you are in line with the above assumptions, you can achieve the targeted amount of $1.5 million at age 45.
How to do so?
Firstly, you will need to do 2 things. Allocate 30% of your monthly income and 30% of your 1 month bonus. Secondly, you will have to allocate all of your 2nd bonus.
For example, if you earn $4,000 a month, it is equivalent to $48,000 a year. Adding a month of bonus to it you will have $52,000. So 30% of $52,000 will be $15,600. After that, add another month of bonus ($4,000) to $15,600 and you will have $19,600.
You will continue using this calculation until age 44. So 2nd year, you will have allocated $20,384. 3rd year, $21,199 and so on.
After that, you will need to invest your allocated retirement fund at a reasonable annual growth of 6%.
If you’re able to do so, you’ll achieve $79,359 on your first year allocated amount of $19,600, after having an annual growth of 6% at 24 years. Your 2nd year allocated amount of $20,384 will achieve $77,862 at 6% at 23 years. And so on.
At age 45, you will have $1,544,273.
What if you have a higher risk appetite? You will achieve $3,461,645 if you can get an annual growth of 12%.
Your total capital? $766,019.