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The Million Dollar Reason to Start Saving Early

10/18/2014

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Q. I am just out of college and with a annual salary of $30,000, I cannot afford saving for my retirement.  What should I do now?

A. How about $1 million dollars at the time when you retire, will that give you enough incentive to start saving?

Here are the details, it should be painless to implement for most people -

If you just save 6% each month from your pay, it will be $150 a month to your 401K.  Most employers offer a match to employee 401k contributions, let's say the match is 50% up to 3% of your pay, it will be $75 contributed by your employer.

There is more - as retirement money is pretax, assume you are in the 15% tax bracket and state income tax of 3%, your $150 per month pre-tax saving will reduce your tax bill by $23 at the Federal level and $5 at the State level.

Assume you can get annual salary raise average 3% each year, and assume your retirement can achieve average annual growth rate of 8% (which requires the portfolio to be an aggressive portfolio with 70% weight in stocks), in 40 years, your account balance will reach $1M!

How to fund the $150 per month saving?  Bring your own lunch, find a roommate, save the gym membership fee, use an used car, cut the cable cord, ... you should have no difficulty to find the sources if you really want to!
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