Retirement should be one of the least stressful times in your life. After decades of working, you can use your time however you see fit. Whether your retirement consists of traveling, extra time with family, golfing, or full-time porch sitting, one way to make it as stress-free as possible is by not worrying about finances.
It's hard to say with 100% certainty how much you'll need for retirement, but it's always better to be overprepared than underprepared. And this doesn't have to be hard. Time and consistency can do a lot of the heavy lifting for your retirement savings.
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The most important retirement table you'll ever see
| Years Invested | Personal Contributions | Total Value | Amount Generated From Investment Returns |
|---|---|---|---|
| 5 | $60,000 | $73,200 | $13,200 |
| 10 | $120,000 | $191,200 | $71,200 |
| 20 | $240,000 | $687,300 | $447,300 |
| 30 | $360,000 | $1.97 million | $1.61 million |
| 40 | $480,000 | $5.31 million | $4.83 million |
Data source: Author's calculations, rounded to the nearest hundred.
This is the most important retirement table you'll ever see, but not because of the specific numbers. Those will vary widely based on how much you're investing and your returns. The reason it's so important is that it shows the true power of time and compound earnings.
Returns on your investments allow you to have more than you invested, but compound earnings widen this gap with time. In the table, at 20 years invested, the difference between account value and personal contributions is $447,300. Add 10 years, and this gap is around $1.61 million. Add another 10 years, and it jumps to a whopping $4.83 million.
Compound earnings allow people to build wealth even when they invest only modest amounts.
Time-wise, you can learn a lot from the table by paying attention to just how much the investment values jump with each increment of years added. Notice that investing for 20 years versus 10 years results in just over a $490,000 difference. Investing for 30 years versus 20 years creates around a $1.28 million difference. Investing for 40 years versus 30 years results in a $3.34 million difference.
Time and consistency reign supreme in investing
People can make up for what they lack in money to invest by investing earlier and consistently. If you have the financial means, you should be investing through bear markets, bull markets, and everything in between. An easy way to keep yourself consistent is by using dollar-cost averaging.
When you dollar-cost average, you set a schedule and commit to investing a certain amount at pre-determined times. For example, you could decide to invest $100 every Friday, $500 every other Tuesday, or $1,000 every first of the month. The frequency isn't as important as making sure you stick to your schedule and invest regardless of stock prices at the time.
Sometimes you'll invest when prices are high, sometimes you'll invest when they're low. You just have to trust that it'll even out over time and appreciate the peace of mind that can come from not stressing over trying to time the stock market. Most aspects of investing are out of your control, but the one thing you can control is your consistency.
