Dreaming of retiring with a substantial $5 million cushion? Here’s the monthly savings target to make that dream a reality

Diving into the numbers, we explore how much you should allocate each month to reach a comfortable retirement with $5 million in the bank by the age of 67. This journey starts at ages 21, 25, and 30, offering different perspectives and strategies tailored to your starting point in life.

Many young individuals in the United States harbor aspirations of retiring as millionaires, buoyed by their optimistic outlook on achieving this financial milestone.

According to Northwestern Mutual’s 2023 “Planning and Progress Study,” the consensus among Americans is that retiring with over $1 million is a necessity. However, the perceived target varies slightly across age brackets. Individuals in their twenties estimate the need at approximately $1.2 million, while those in their thirties and forties gauge it around $1.44 million and $1.28 million, respectively.

While these figures may seem ambitious, more than half of the respondents in Northwestern Mutual’s study expressed confidence in their financial readiness for retirement.

It’s crucial to understand that the amount required for retirement savings is highly individualized, and influenced by factors like location, post-retirement work plans, and anticipated healthcare expenses.

But let’s entertain an ambitious scenario: aiming to retire with $5 million. CNBC has crunched the numbers to determine the monthly savings required if you embark on this journey at ages 21, 25, or 30, assuming an initial balance of $0 and excluding unforeseen life events such as market fluctuations or career advancements.

Considering the general recommendation to save around 15% of your income for retirement, CNBC also outlines the corresponding annual income needed to achieve the $5 million target without exceeding this savings rate.

If you commence at 21:

• With a 5% annual rate of return: $2,324 per month
• Annual income required with a 10% savings rate: $278,899
• Annual income required with a 15% savings rate: $185,942
• With a 7% annual rate of return: $1,226 per month
• Annual income required with a 10% savings rate: $147,089
• Annual income required with a 15% savings rate: $98,064
• With a 9% annual rate of return: $616 per month
• Annual income required with a 10% savings rate: $73,964
• Annual income required with a 15% savings rate: $49,312

Starting at 25:

• With a 5% annual rate of return: $2,922 per month
• Annual income required with a 10% savings rate: $350,601
• Annual income required with a 15% savings rate: $233,745
• With a 7% annual rate of return: $1,643 per month
• Annual income required with a 10% savings rate: $197,128
• Annual income required with a 15% savings rate: $131,425
• With a 9% annual rate of return: $889 per month
• Annual income required with a 10% savings rate: $106,629
• Annual income required with a 15% savings rate: $71,090

Embarking at 30:

• With a 5% annual rate of return: $3,905 per month
• Annual income required with a 10% savings rate: $468,566
• Annual income required with a 15% savings rate: $312,393
• With a 7% annual rate of return: $2,385 per month
• Annual income required with a 10% savings rate: $286,185
• Annual income required with a 15% savings rate: $190,800
• With a 9% annual rate of return: $1,410 per month
• Annual income required with a 10% savings rate: $169,215
• Annual income required with a 15% savings rate: $112,816

While becoming a millionaire might not be everyone’s retirement goal, understanding the financial landscape and the necessary savings to sustain post-career life is invaluable. CNBC Make It’s retirement calculator can provide personalized insights based on factors like age, income, and existing savings.

Remember, it’s alright to start small and gradually increase your contributions over time. Incrementally raising your savings rate, perhaps by 1% annually, can steadily align you with the recommended 15% threshold. Early initiation is key, as it allows your investments to leverage the power of compound interest, fostering substantial financial growth over time.

“Investing at a young age not only enables your capital to flourish significantly, securing a robust financial future but also serves as a platform for learning and experimentation in the realm of investments,” remarks Joanna Rotenberg, president of Personal Investing, as highlighted in Fidelity’s “Q2 2023 Retirement Analysis.”

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