The Great American Do-It-Yourself Retirement Fraud, Brought to You By Big Finance & Co.

[FreeJoe]

56. Check your math

If someone makes $50K and contributes 15%, that is an annual contribution of $7,500. If you invest $7,500 annually with an 8% return on investment, you should have $1,652,369 after 38 years. I get that by assuming that I'll save $7,500 at the end of year one. For each subsequent year, my savings grows by 8% and I add another $7,500. See the table below.

All that said, you wouldn't want to keep all of your retirement savings in the S&P 500 right up until retirement. That's too risky. So instead, you'll save some money in other assets like bonds that mitigate some risk. That will reduce your return. You also need to factor in inflation. That will reduce the value of your savings over time. You also need to factor in investment costs. While some people are lucky enough to have low cost funds charging only 0.1% annual fees, others are stuck with much higher fees. You also have the risk that you won't actually be able to save 15% of your income every year from when you are 28 until you retire when you are 66. Life has this way of throwing us curve balls - job loss, unexpected bills, etc. Finally, when you are retired, you'll want a large chunk of your nest egg in something much more stable than stocks, so your investment returns in retirement will be lower. I see people debating whether the safe withdrawal rate is 3% annually or 4%. When you add it all up, retiring comfortably on savings isn't the easiest thing to do.


Year 1 7,500.00
Year 2 15,600.00
Year 3 24,348.00
Year 4 33,795.84
Year 5 43,999.51
Year 6 55,019.47
Year 7 66,921.03
Year 8 79,774.71
Year 9 93,656.68
Year 10 108,649.22
Year 11 124,841.16
Year 12 142,328.45
Year 13 161,214.72
Year 14 181,611.90
Year 15 203,640.85
Year 16 227,432.12
Year 17 253,126.69
Year 18 280,876.83
Year 19 310,846.97
Year 20 343,214.73
Year 21 378,171.91
Year 22 415,925.66
Year 23 456,699.72
Year 24 500,735.69
Year 25 548,294.55
Year 26 599,658.11
Year 27 655,130.76
Year 28 715,041.22
Year 29 779,744.52
Year 30 849,624.08
Year 31 925,094.01
Year 32 1,006,601.53
Year 33 1,094,629.65
Year 34 1,189,700.03
Year 35 1,292,376.03
Year 36 1,403,266.11
Year 37 1,523,027.40
Year 38 1,652,369.59