Funding a Comfortable Retirement

October 15, 2013

Couple_backpackingUnless you are lucky enough to win the lottery or inherit a lump sum of money, you’ll need to make regular contributions to your retirement account in order to accumulate enough money to sufficiently fund your life in retirement.

It’s easier for most of us to contribute to our retirement accounts each month or each paycheck than to try to scrape together some cash after all our bills are paid. Even relatively modest monthly contributions add up over time, especially if these contributions are invested in a combination of stocks and bonds.

For example, if you had accumulated $50,000 for retirement and invested 80% of this nest egg in stocks and 20% in bonds (using the S&P 500 for stocks and the Barclays Aggregate Bond Index for bonds), your initial $50,000 would have grown to $467,134 over the 25 years ending December 31, 2012.

But if you consistently contributed $250 to your account each month over this 25-year period and continued to invest these contributions in same 80/20 allocation, your portfolio would have grown to over $700,000 over 25 years. That difference can provide a different quality of life in retirement.

Contributions Add Up Over Time

If you were able to contribute even more money to your retirement each month –$500 or $750 a month — your portfolio would have grown even more dramatically over this 25-year period, as the chart below indicates.

retirementchart13 Click on the chart to enlarge it.

The chart also includes the annual income you could withdraw from your retirement account assuming a 4% withdrawal rate. If you retired with $467,134, your annual income in retirement would be just $18,685. If you made $500 contributions each month and retired with $945,782, your annual income would be $37,831.

This example assumes one allocation (80% stocks and 20% bonds) over one 25-year time frame, but it illustrates how saving and investing can add up over time and ultimately help us fund a much more comfortable life in retirement.

Make time work for you by adding regularly and steadily to your retirement — the results can change your life.

 

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David Holdefer October 16, 2013 at 3:20 am

I began investing right around 1987, when I was given a book by Sheldon Jacobs called No-Load Fund Investing. Shortly thereafter I began to follow a number of financial mutual fund newsletters and over the last 25 years, I have settled into my favorite newsletter: No-Load Fund-X. Young people need to realize that long term investing mitigates short-term risk. You can’t jump in and out of the market, you have to be patient and upgrade.

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