Kiplinger’s Personal Finance Magazine has some suggestions for saving a million dollars regardless of your age. The only catch is that it’s going to take several decades to get to that point. The passing time has a detrimental effect, however. Inflation will eat away at your purchasing power so $1,000,000 thirty years from now will not be as useful as $1,000,000 now. Regardless, taking these thoughts into account is better than doing nothing.
At Age 35
* Save 15% of your gross income. In addition to whatever short-term savings goals you might have, like a down payment on a house or preparing for children, 15% of your gross income should be saved for your long term retirement goal. Kiplinger’s calculates you’ll need $671 per month invested in the stock market if you’re starting from scratch at this age.
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* Shift your assets to 90% stocks and 10% bonds. I think this recommendation could be misleading. I think your assets must be separated into buckets for specific goals, and then the asset allocation must be tied to the time horizon for those goals. For instance, at age 35, it will still be several decades before you can use your retirement funds. I would keep them in 100% stocks (or close to it). Savings intended for a house down payment should be in bonds, CDs, or cash, depending on how soon you’ll need the money. Overall, this could look very different than a 90/10 mix.
* Invest in a 529 college-savings plan. I’m not sure that this piece of advice can be as universal as the magazine suggests. Not everyone has children or other relatives who will be attending college. It’s a good idea for those who are already on a clear path of having a secure retirement and who have family members who can benefit from the tax-free distributions from a 529 plan.
The monthly $671 you’ll need to devote to retirement assumes you have no savings. If you’ve managed to save $50,000 for retirement by age 35, then you’ll only need $304 each month, less than half. But if you can manage the higher amount, I would strive for that.
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How to Make a Million at 35 [Kiplinger’s Personal Finance]
Updated September 23, 2015 and originally published February 3, 2008.
{ 8 comments… read them below or add one }
I have a similar post about this Kiplinger’s article on my blog. I was thinking about that same thing when reading it, however – just how much inflation will hurt that money – how much will 1 million be worth when i’m 65? good point.
If you are 35 you should be able to have more than one million at retirement. It will just take some will power and ingenuity.
Inflation is not a mere side note. If inflation continues its long-term average, your $1,000,000 in 2038 dollars is equivalent to $363,583 in today’s dollars. To have what is equivalent to $1M today, you need to accumulate $2.75M in 30 years. With Kiplinger’s 8% APY, that means you’d need to save $1,845 per month. Those would $50,000 already saved would need to add $1,478 each month to reach inflation-adjusted millionaire status. These numbers are the truth, unfortunately they don’t sell magazines.
When I initially read the post, I thought to myself…how does this make any sense? I’m putting up $2000+ per month in savings and am still not sure it’s enough!
I then read the reader comments and really appreciated the feedback about inflation, and Dan’s in particular, which gave us some real numbers. I think it’s a very significant omission not to highlight this in the article. In fairness, given the personal savings rate in our country, amassing $1,000,000 dollars at 65 still may be quite an accomplishment for many. However, as Dan pointed out, it’s hardly the same million dollars that people may be expecting…and far far away from what I am personally targeting for my own retirement.
I am 5 years past the 35 y.o. mark, but I have already been planning on at least $2m to retire on due to inflation eroding away the value of a dollar.
Experience is teaching me that it is all about properly investing. I bought 2 homes after investing about 50K in each home. and now those two homes lost this whole value 100K and now still going down. However, I also invested 75K in my own country and there the values raised to 300K in just 5 years. So, I am thinking that US is not a very good destination for savings. So, what I suggest is the following.
1. Buy a home, which is enough for you now, for which you can put 20% down payment. This will reduce your tax rate and you can enjoy your own house.
2. Put money in stocks in emerging markets like India, China, Philippines, Russia etc… you can put it in the mutual funds representing those countries.
3. As everybody says, keep 3 months of emergency funds and put them in a CD.
4. Be vigilant on the investments you are making and once any investment gives you more than 20-25%, just come out of that.
5. Never go for huge debts.
I still don’t understand why having a 529 plan is part of retirement. I don’t plan on going to school when I retire, and saving for your kids will only kill your retirement account.
Maybe one day I’ll be in a position to pay for my children’s education, but until then they can work a job and get student loans just like me (or be smarter and get grants and scholarships).
This online spreadsheet will allow you to figure out how much you will need to accumulate, taking inflation into account.