While young people might have a variety of financial goals, such as buying a car or saving for a house, experts agree that thinking about retirement early should also be a priority. And the earlier you start, the easier it could be for you to become a millionaire.
All it takes is investing $1,000 per month throughout your career to maybe make you a millionaire, according to CNBC.
And according to Vanguard, the secret to actually reaching a million is not that hard: it’s time.
If you give your savings enough time to grow, you’ll only need relatively small investments of money — made consistently — to wind up with a pretty big balance, Vanguard explains on its website.
“Because compounding is so powerful, starting early gives you more flexibility later on in life,” according to Vanguard.
It’s worth noting that only half of Americans have calculated how much they need to save for retirement, according to the Labor Department (DOL). In addition, in 2020, more than a quarter of private industry workers with access to a defined contribution plan — such as a 401(k) plan — did not participate. To put things in context, the average American spends approximately 20 years in retirement, so putting money aside is a habit better started early, the DOL recommends.
“Retirement is expensive. Experts estimate that you will need 70% to 90% of your pre-retirement income to maintain your standard of living when you stop working,” according to the DOL.
CNBC dug deeper to estimate exactly how much investing an extra $1,000 per month now will equal when you are ready to retire, assuming you put your money in a retirement account, you get an estimated 4% return on your investments, and you retire at age 67. CNBC also warns that the math doesn’t account for fees, taxes or “any curveballs that life may throw at you, so plan accordingly.”
Here’s the breakdown, according to CNBC.
If you start saving $1000 a month at age 20 will grow to $1.6 million when you retire in 47 years. For people starting saving at that age, the monthly payments add up to $560,000: the early start combined with the estimated 4% over the years means that their investments skyrocketed nearly $1. 1million.
“Starting younger lets you take advantage of the power of compound interest,” CNBC says. “That means you get returns on the money you invest and even better, returns on your returns.”
If you wait until you turn 30, you’ll still earn more than $1 million. Starting at that age means that you will have set aside $444,000, and get nearly $600,00 in earned interest.
“There is a pattern the longer you wait the more money it will cost you in the long run. If you start making these savings at 40, they will grow to $500,000 for your retirement, with more than $300,00 set aside and $250,000 in return. And if you start at age 50, you will retire with $300,000 at 67, having invested $204,000 and getting back $90,000 in interest.”