I'm less than a decade from retirement, and I'm feeling grateful that I ran across a certain table of information several decades ago. It opened my eyes and led me to start saving and investing, and it can do the same for you -- taking you from a retirement full of financial struggles to one of comfort and peace of mind.
Here's a look at the table and how it can improve your financial future.
Image source: Getty Images.
The most important retirement table
There are many possible versions of this important table -- here's one:
|
Growing at 8% for |
$5,000 invested annually |
$10,000 invested annually |
|---|---|---|
|
5 years |
$31,680 |
$63,359 |
|
10 years |
$78,227 |
$156,455 |
|
15 years |
$146,621 |
$293,243 |
|
20 years |
$247,115 |
$494,229 |
|
25 years |
$394,772 |
$789,544 |
|
30 years |
$611,729 |
$1,223,459 |
|
35 years |
$930,511 |
$1,861,021 |
|
40 years |
$1,398,905 |
$2,797,810 |
Data source: Calculations by author.
Pretty powerful, right? Many people assume they can never become a millionaire -- or even have an account worth, say, $500,000 -- but there's a decent chance they can.
Before I saw a table like this, I had just been accumulating money in my bank account without any good plan for what I would do with it. I was thinking of buying a fancy stereo, in fact. But the table really opened my eyes, making me see how I could really accumulate money in a financial account -- much more than I'd ever imagined having.
As the table shows, anyone can become a millionaire, if they invest modest sums regularly over a long period. Yes, there are ways that you might make a lot of money over shorter periods, but they're less reliable than simply socking dollars away in the stock market.
Why stocks?
The stock market is arguably the best way to build long-term wealth. Check out another important table below, reflecting the returns of various asset classes between 1802 and 2021, per Wharton Business School professor Jeremy Siegel:
|
Asset Class |
Annualized Nominal Return |
|---|---|
|
Stocks |
8.4% |
|
Bonds |
5% |
|
Bills |
4% |
|
Gold |
2.1% |
|
U.S. dollar |
1.4% |
Data source: Stocks for the Long Run, Jeremy Siegel.
Stocks outperform over shorter periods, too. For example, Siegel found that between 1946 and 2021, stocks grew at an average annual rate of 11.3%, versus 5.8% for long-term government bonds.
Why 8%?
I used a growth rate of 8% in the most important table above because while the long-term average annual growth rate of the stock market is roughly 10%, you can't count on averaging that rate over your own investing period, which might be just 10 or 20 or 30 years.
You might actually average 12% or more, but to play it safe, prepare for below-average returns while hoping for above-average ones.
You can invest in a range of growth stocks if you want to aim for above-average returns, but that will take time and energy as you study stocks and make buy and sell decisions. Remember that you can make it all super easy by just parking most or all of your money in a low-fee, broad-market index fund or two, such as one that tracks the S&P 500.
What it all means for you
So what can you take away from that all-important table? Lots of lessons. For example:
- See how powerfully money can grow over time. Clearly, the sooner you start investing, the longer your money will be able to grow for you. (Your earliest invested dollars are your most powerful ones.)
- See how the biggest gains come in the later years. For best results, you'll have to stick to your plan for a long time, trusting that your initial small annual gains will become big gains in a decade or two.
- The more you can invest each year, the more you'll end up with. This is obvious, of course, but if you can swing, say, $20,000 contributions each year (around $1,675 per month), take a moment to double the numbers in the $10,000 column above to see just what's possible for you. You may be able to hit millionaire status in just 20 years.
- Remember that the 8% annual growth rate is a somewhat conservative estimate. You might actually average a greater growth rate, and that could get you to your goals faster.
As you start or continue investing, remember to make the most of tax-advantaged retirement accounts available to you, such as IRAs and/or 401(k)s.
Whatever you do, don't neglect saving and investing for your future, because most of us need to do so. A recent Motley Fool research report found that only 58% of Americans are invested in stocks -- which means millions likely have endangered retirements. Be in the 58%.
