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~Achieving $1 Million in Retirement Savings~

 

Those of us who are members of the Maine State Retirement system can fairly easily estimate how much annual income we will receive when we retire, assuming no changes are made to the system.  The next question is......will our pension income be enough to support the lifestyle we desire?  It might or it might not be.  And while we hope that responsible people are running state government in the future, this is no guarantee - and who knows what changes they might make to our pension system.

 

That's why it's important to have diversification in one's retirement income sources.  And that's where saving and investing come in.

 

It might seem like having $1 million in retirement is ridiculously unachievable, but it's not as crazy as it sounds.

 

Let's say you're a relatively young person who will be working for 30 years.  Over the last 100 years, the stock market has compounded at an annual growth rate of around 10%.  And while many of us may be skeptical of what the future might bring, keep in mind that the last 100 years included a major economic depression, the assassination of the president, several very long wars, the worst terrorist attack in US History, the collapse of the global financial system, and a violent attempt to overturn a presidential election - just to name a few........  

 

 

Despite all of those terrible things, the stock market averaged growth of 10% per year over those 100 years.  Assuming that the stock market matches this rate of return for the next 30 years, one would need to invest about $200 a paycheck (over 26 paychecks a year) to reach $1 million at retirement.  That might be very feasible for many people.  And if you don't have 30 years until retirement, and you already have some retirement savings, it may still be very feasible.

 

Of course, reaching $1 million at retirement depends on a number of factors.

 

One of those factors is that the stock market may not compound at 10% per year over the next 30 years.  A big part of this is luck.  We just don't know what investing environment we'll be living through during our lifetime until it's over.  

 

But, interestingly, during the last 100 years, the WORST rate of return in the stock market over any 30-year period has been around 7.8% (see:  https://tinyurl.com/47xkkewn ).  That particularly "bad" 30-year span included an 80% crash in the stock market during the Great Depression, but the stock market eventually recovered and over that "terrible" 30-year period still managed to compound at an annual rate of 7.8%.  The same $200 per paycheck investment over that 30-year period would have yielded $680,000 at retirement.  Not $1 million, but still a nice sum to supplement pension or Social Security income.

 

And then of course there's inflation......the $1 million you'd have in retirement won't actually be worth $1 million in today's dollars, so one could also increase the $200 contribution each year to try to offset some of the effects of future inflation.

 

And if you have a partner who can also save a similar sum each paycheck, it will make it even more likely that you will be able to achieve these results - or better.

 

Either way, having your own income source in retirement is a good way to ensure that you will be more likely to do the things that you want to do in retirement - and it can also help to insulate you from the risk of people in government doing crazy things with our pension system......

 

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September 24, 2023