Certainly! Here’s the rewritten article in the third person:
Achieving a million-dollar retirement nest egg may seem challenging, but it is attainable for individuals with average incomes. The key is not about making a few brilliant trades or investing all discretionary income. Instead, saving $1 million for retirement can be accomplished through modest, consistent contributions over one’s career.
This article explains how much needs to be invested in an employer-sponsored 401(k) plan monthly to accumulate $1 million after 30 years.
Calculating Retirement Savings
To determine the necessary monthly contributions, certain assumptions are required. One crucial assumption is the expected return on investments. The scenario considers investing in a fund that mirrors the S&P 500’s long-term average annual return of 10%. It also assumes constant monthly contributions throughout the career.
Under these conditions, contributing $450 per month suffices. This amounts to $5,400 annually, totaling $162,000 over 30 years. The resulting balance would include over $800,000 in net gains, with significant growth occurring in the last decade due to compound interest.
However, this example omits the impact of inflation. While inflation may lead to higher wages and increased contributions over time, it also diminishes future purchasing power. Based on a long-term average annual inflation rate of about 3%, $1 million today would equate to approximately $2.5 million in 30 years.
Addressing inflation and wage growth, a more aggressive saving strategy is presented. Assuming average annual raises of 3%, which also increase contributions, starting with a $930 monthly contribution in the first year can help reach the equivalent of $1 million in today’s dollars over 30 years.
This scenario does not consider taxes on retirement withdrawals or company matches in 401(k) plans.
Encouragement for Steady Contributions
Those finding it difficult to contribute significant amounts are encouraged not to be discouraged. Setting aside any amount now provides a foundation for increasing savings later as circumstances change. Early saving allows a 401(k) balance to benefit from long-term compounding, where time significantly aids portfolio growth.
James Brumley has no position in the stocks mentioned, and The Motley Fool holds no position in them either. The Motley Fool’s disclosure policy is available for further reference.
