In my 20’s and 30’s I didn’t understand about retirement saving. I did a calculation recently and found that not saving would have cost me millions.
How did you fnd this?
1. Go to My social security and register to have online access to your social security and work history:
Agree to terms of service.
2. copy and paste the data into a spreadsheet:-here’s one to try:
I assumed these things:
*Start working in 2006
*Most Common income for a household in 2006 was $46,326
*The “new normal” is essentially “no raise”. You get a “raise” but it only keeps up with inflation 😦 that’s 3%
*Following Dave Ramsey’s suggestion of savings, you should save 10% before taxes.
*Average return on your money invested in the stock market over 30 years is 9.62%
Let’s walk through the spreadsheet….
YEAR-the year that you earned money that was taxable by the federal government and you paid into Social Security (15%).
INCOME-the amount of income that was taxable in the dollar amount of that year.
6% MATCH-typically what a company gives you for free if you invest at least 6% of your money in a retirement plan. (Income*0.06)
SAVE 10PCT-Your Income * 10%. (INCOME*0.10)
401k MAX-the maximum amount per year that the federal government allows you to save pre-tax per year. Currently $17,500/person.
SAVED-Total amount you socked away per year (10%+the 6% company match)
NEST EGG GROWING- If you and spouse worked for 35 years with invested money compounding @ 9.62% in the stock market.
My brainiac husband, who has his MBA, helped me with my spreadsheet. Of course there are much more complex ways of looking at this but I wanted it to be accessible and understandable. No graphs or waxing poetic on saving and investing for now.
3. At the beginning, you see how quickly money begins to compound and grow a NEST EGG:
7years from now, you have over a quarter of a MILLION!
4. By the time you both retire in 35 years, in year 2040, you have almost 3 MILLION!
Or do you?
Inflation is a nasty thing-it eats at your money at about 3%/year. (the cost of things goes up).
To find out what the “buying power” will be in 2040, I rely on those who have studied finance and have super online tools:
You may have $3 Million in 2040 and what you would be able to buy would be the equivalent to having $1 Million today.