After you have an idea of how much money you’ll need to live a financially secure retirement, it’s time to see if you’re on the right track. There are a lot of calculators online trying to help people answer the question of how much do I need to save each month to retire, but I haven’t found one that lets people see how much they need to save to reach a specific goal.
If you’re trying to save a certain amount of money, for any reason, you probably don’t care about what inflation will be, or how much you might collect in Social Security payments each year. A lot of retirement calculators available online let you put in how much money you’re investing each year, and tell you how much money you’ll have at some point in the future. I’ve created a calculator that lets you work backward instead. You put in how much money you want to have at retirement, and it lets you know how much money you need to be investing each month. Using this calculator is a great way to see if you’re saving enough each month to meet your retirement goals.
To get started, put in your current age, retirement age, and how much money you want at retirement. You can optionally put in how much you’ve already saved, your estimated return on your investments (as usual, I default to 7%), and the percentage you intend to increase your contribution each year (for example, from raises).
This calculator can be used for other purposes as well. You can use it to find out how much you’d need to save to reach a certain down-payment on a house, or to find out how much you’d need to contribute each month to fund a college account. If you play around with the calculator, you can see just what an impact time has on reaching your retirement goals.
Depending on your current age, you might say you need anywhere from $1 to $2 million to retire. The graphs below show how much you’d need to invest each month to reach a goal of $1,000,000. Double the numbers to see how much you’d have to invest each month to reach $2,000,000. The first chart is based on an average return of 5%, and the second is based on an average return of 7%. The longer of an investing horizon you have, the more likely you are to get returns closer to the market average.
Including the ages of 50 to 65 really distorts the picture, but including them really drives home the point about how powerful slow and steady investments are towards meeting your retirement goals. You would need to invest 44% more each month if you delay saving for retirement from age 25 to age 30.
If you start saving at age 40 instead of age 30, you’d need to come up with an additional 115%. Don’t let these charts discourage you if you haven’t started saving enough for your future. As you can see, there’s no time like the present to get started. Wait too long, and it might not be possible to ever save enough to retire comfortably.
This last chart shows the percentage of a $40,000 salary that would need to be invested each year to reach $1,000,000 at age 67 with a 7% return. Start early, and it’s not very painful. With a 3% 401(k) match, that’s only 8% out of pocket if you start at age 25.