Sure, a million dollars isn’t what it used to be, but it’s still a good chunk of cash to retire on.
With good planning, discipline, and an early start, that million-dollar milestone could be all yours. Knowing how to reach that goal requires a mathematical understand of compounding. One good illustration involves using the ‘rule of seven’ to explain what you need to save each month to be a millionaire at 65 years old.
It involves two assumptions: $10,000 in savings and an annual inflation-adjusted growth rate of seven per cent.
The longer you wait, the more you need to contribute each month.
25 YEARS OLD: WILD AND FREE
If a 25-year old with $10,000 invested $320 a month at a 7 per cent annual compound rate of return until they turned 65, they would wind up with $1 million.
At 7 per cent, your money doubles roughly every 10 years.
35 YEARS OLD: KIDS, HOUSE PAYMENTS
Instead of $320 per month, you’re looking at saving $775 a month to turn that $10,000 into seven figures. With kids and a mortgage, wouldn’t it be better to keep contributing $320 a month?
45 YEARS OLD: ESTABLISHED
You’re in your high-earning years but you’ll need to add $1,850 every month to that $10,000 base in order to reach $1 million in 20 years.
55 YEARS OLD: THE STRUGGLE
Now the amount needed to reach $1 million with a $10,000 bankroll is $5,700 a month for 10 years. $320 a month thirty years ago would have been so much easier.