When it comes to saving up for retirement, you probably think you can't compete with a super-smart, hotshot doctor who pulls in a six-figure salary and has a magic investing touch. But you'd be wrong.
Let's say you graduate from college at age 22, alongside this future medical superstar. From that point on:
- You enter the workforce, and she heads on to medical school.
- You contribute $2,500 a year to the Vanguard Total Stock Market Index Fund (FUND:VTSMX) through your 401(k), and you earn the market's historical annual return of 10%.
- Your friend enters the workforce after seven years of medical school. By virtue of her greater earnings power and stellar investing skills, she's able to contribute $3,500 each year and earn 12% annually.
How you compete
Your friend's ability to contribute more money each year and to earn 2% more than you is huge -- huge, I tell you. But not bigger than your seven-year head start. You'll both reach the $1 million mark at the retirement age of 60:
Regular scenario
|
Age |
Savings |
|---|---|
|
42 |
$157,506 |
|
53 |
$500,344 |
|
60 |
$1,001,119 |
Hotshot doctor scenario
|
Age |
Savings |
|---|---|
|
42 |
$113,374 |
|
53 |
$466,669 |
|
60 |
$1,066,967 |
The best retirement advice
Fool co-founder Tom Gardner once said, "The best time to start investing was yesterday. The next best time is today." If you start today and do nothing more than regularly add money to the boring but cheap Vanguard Total Stock Market Index Fund -- top holdings include ExxonMobil (NYSE:XOM), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Altria (NYSE:MO), Intel (NASDAQ:INTC), and Chevron (NYSE:CVX) -- you could have your million-dollar nest egg in 40 years. Of course, with some smart planning, you could even accelerate that.
It is never too early to start your retirement planning, and in the latest issue of Motley Fool Rule Your Retirement, editor Robert Brokamp talks with investing expert Joel Greenblatt about his market-beating techniques. There's also an explanation of how inflation can nibble away at your nest egg, and what you can do about it.
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Rex Moore salutes one of his former schools, Hill Elementary in Austin, Texas. He does not own shares of any company mentioned in this article. Bank of America is a Motley Fool Income Investor recommendation. The Motley Fool isinvestors writing for investors.
