We are now 3.5 years out from the start of this thread.
Time flies! But what have YOU done to make progress for retirement?
Say you started with $25,000 in the retirement fund way back then.
And added $100/month (about $5 each working day) - you don't play individual
stocks, cause who has time for that? So you put it in a Vanguard total market fund - VTSAX
In that time - the annualized rate of return has been ~11% - you now have a little more than $41,000 in
the account. But you only contributed $4,200 in that time period.
while you aren't going to retire on $40k, it is a good example of relatively painless growth.
what if you started with $0 10 years ago?
The 10yr rate of return is a huge 14%
The account would have a little more than $24,650 -
Contributing $100/mo it would be generating more than twice that in returns now.
Money making money.
So once again, you can't retire on $25,000 - but in general, your money is going to double every 7-10 years.
so the earlier you start, the better off you'll be.
OK - 1 more scenario - you have a work 401K, and they provide a match of 1/2 of what you contribute up to some point.
the $100/mo only reduces your monthly paycheck by $75 cause pretax, but contributes $150 to your plan. Starting with the $25k again,
over the last 3.5 years. $43,600 in the retirement account. mo money! - and how much belt tightening did you do for $20/week?
If your employer has a match - i suggest that whatever their max match is, that this would be the minimum contribution to your 401k...
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Let's look at the other end - you need to have some sort of LT goal - and it should be difficult, but achievable.
Like finishing a 100mi mtb race w/o dying.
$50,000 will produce $250/month in dividends without touching the principal. Dividends are taxed at a very favorable rate.
Some people like this approach - it is an annuity (stream of income) without giving up the principal - if you buy an annuity, you give up the
principal. Others will play the market, and take LT capital gains (also favorable tax treatment) - but taking money out on a down year has a bad effect on future performance.
problem is that if you put this in a retirement fund (traditional IRA or 401k) to avoid income tax then, it now comes due upon w/d.
If you did a roth ira, you are going to owe no taxes - so choose now! maybe do both? i dunno.
anyway,
here is the calculator which takes a starting amount, contribution, and an average
rate of return to provides the future value.
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as an aside - if you could do the 401k thing for 25 years at the $100/month level, and a more reasonable rate of 8%, the balance would be over $300,000,
more than 75% of that would be earnings, not contributions. think about that.