How much money do you need to save at 50 to retire with a million dollars?
The average income of a 50-year-old in the United States is $77,722. What percentage of that do we have to contribute in order to reach a $1,000,000 retirement?
For a 50-year-old, starting from zero and growing to $1,000,000 retirement, we looked at the most common contribution percentages 10%, 15% and 20% of income. When you run the numbers you will quickly see that with those percentages you aren’t going to make your goal of 1 million.
Retirement Scenario #1
To make the numbers start to work, we decided to max out contributions of $26,000, the maximum allowable by an employer retirement plan.
To reach an annual max of $26,000 in contributions you’ll need to contribute $2,167 per month.
If you compound $2,167 at a rate of 7% for 15 years, starting at age 50 it will grow to about $366,000 by age 60 and $667,000 by age 70. This would give you an income of around $62,000 annually for 20 years, depleting your principal balance along the way, or a 26,000 a year income perpetually.
In this scenario, we reached a total of about $667,000 in a retirement nest egg. That didn’t hit our million-dollar mark, but we’re already contributing the max allowable by most retirement plans. So what do we do in this situation?
Retirement Scenario #2
Since we have maxed out our typical annual contributions, the only thing left for us to do is to contribute the number of years. So let’s go back and take a look and see what that turns into.
But before we do, it’s also important to note that not all retirement plans function the same, and they may have different rules or limits, either increasing or decreasing the amount that you can contribute. Check with your advisor or your administrator.
Starting at age 50, contributing the max allowable $26,000 per year, we grow to about $366,000 by age 60. We pass our $667,000 mark at age 65 and head on up to about $1,000,000 retirement by age 70.
An extra five years of growth will give you about $119,000 in income, depleting the principal balance over 15 years. If you use the 4% rule, you can take about $43,000 a year ongoing, leaving some principal intact for future generations.
Time is one of the biggest factors in achieving our retirement goals.
Retirement Scenario #3
If you don’t have time or cash to grow your retirement account, there’s an additional strategy you can utilize called a secure leveraged compound account.
This type of account introduces other people’s money into your retirement account, thereby accelerating the growth and producing more income in your retirement years.
Let’s take a look at how that type of account works. Using a secure leverage compound account, this time starting at age 50, contributing 33% of income, which is $2167 per month or $26,000 per year, this time compounding at 6.4% for 20 years.
Using a secure leverage compound account can have a huge impact on your final retirement numbers.
If you start at age 50 and compounding for 20 years to age 70, we grow an account balance to $1.27 million, providing a tax-free lifetime income of up to $146,000 with an additional benefit of over $546,000 on life insurance.
Your Retirement depends on more than just time and earned interest
The goal of today’s lesson was to take a 50-year-old starting from nothing, making an average income, and see what he would need to do to have $1,000,000 for retirement.
We figured that out, and we introduced a new strategy that accelerates the growth and possibly produces additional income in those retirement years. If you’re 50 and you’re just getting started, there is still hope you are going to have to work hard and it is going to take a little bit of time, but you can get there.
If you found value in today’s video, please subscribe to our YouTube channel for more wealth-building videos, tips, and strategies. We know everyone’s financial situation is unique, so if you have specific questions about your scenario or your future, please schedule an appointment today with one of our advisors.
It’s not what you make. It’s what you do with what you make.