Is saving $500 a month good and enough for retirement?
Investing $500 a month is a good amount to save for retirement if you are investing for 30 or more years. $500 per month invested over 30 years yields $1.7 million at 8% interest, which is a $68k salary at 4% withdrawal rate. Keep in mind, inflation will reduce the purchasing power of the dollar over the next 30 years.
Imagine, saving $500 per month and knowing it’s enough for retirement. You can breathe easier, knowing you’re on track for a comfortable retirement.
Saving $500 per month can lead to a good retirement, especially starting early.
Luckily for you, I’ll show you if $500 per month is good enough for your retirement. I’ll even show you how to estimate your needed portfolio balance in retirement. With the right planning, you’ll be able to retire on track!
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Is saving $500 a month for retirement enough?
Saving $500 a month for retirement can be enough, depending on your investment timeline and income needed in retirement. A $500 per month investment at 8% interest yields $1.7 million in 40 years, $745k in 30 years, and $294k in 20 years. Inflation will impact the purchasing power of the dollar, meaning you might need to save more for the same lifestyle in retirement.
Here is how much money you would have if you invested $500 per month. Your portfolio balance will depend on stock market returns and how long you plan to invest.
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Investing $500 per month could result in a portfolio size between $294k and $5.9 million, investing between 20-40 years. You could have enough for retirement if you invest consistently long-term and have a favorable rate of return.
As you can see, the sooner you start investing, the easier it will be to have a large investment portfolio.
Keep in mind, retiring with a $1 million portfolio might seem like a lot now, but you need to account for inflation. You might need more money than anticipated because the purchasing power of the dollar will degrade.
Most people should be able to retire by investing $500 per month over the course of 30 or more years. How much you actually need will depend on your lifestyle and estimated expenses in retirement. Therefore, you should calculate your individual retirement number or speak to a retirement advisor.Click to Tweet! Please Share!Click To Tweet
How much should I be saving each month?
Estimate your targeted monthly savings rate by estimating your expenses in retirement and a 4% withdrawal rate. From there, use a retirement calculator to estimate required contributions to reach investment goals. Withdrawing $50k annually requires $1.25 million invested, requiring monthly contributions of $825 for 30 years at 8% interest.
First, estimate how much money you think you’ll need in retirement. Consult your budget, estimate your current expenses, and estimate your expenses in retirement. Let’s assume you need $40k per year in today’s dollars to retire in 30 years.
You will then need to count for inflation, because the value of the US dollar decreases over time. Using an inflation calculator, you’ll need about $72k per year in retirement to maintain a $40k lifestyle in 30 years.
Keep in mind, inflation is only estimated. You should also consider that most people spend less in retirement.
The ‘safe withdrawal rate’ is considered to be 4% of your initial investment principal. Therefore, you would need about $1.8 million saved for retirement. Note, most people don’t have this much saved by retirement age.
The S&P 500 has an annualized return of about 10% since inception. Using a retirement calculator, you would need to invest $800 per month over 30 years to reach $1.8 million.
How much do I need to save a month to retire with 1 million?
You can retire with $1 million by investing $671 for 30 years at 8% return on investment. Contributing less money would require you to invest for a longer period of time. Investing more money would allow you to reach $1 million faster. You can control your investment contributions, timeline, or finding higher yielding investments.
The two questions you need to ask yourself are, ‘how long can you invest’ and ‘how much can you invest.’ You can then use a retirement calculator to determine your specific case for reaching $1 million.
For example, some people can’t save $500 per month. You might be able to save $300 per month, in which case you could reach $1 million in 40 years at 8% ROI.
Alternatively, you might not have 30 years to invest because you’re 40, wanting to retire at 60. Therefore, you would need to invest $1,700 per month to reach $1 million at 8% return on investment.
Keep in mind, 8% return on investment can be seen as a conservative return on investment. The S&P 500 has returned over 15% ROI annually over the last 10 years. Therefore, you need to use an interest rate which speaks to your risk tolerance.
What is a good amount of money to have in savings?
Most people should keep 3-6 months savings in their savings account. Additional money should be invested to take advantage of compounding interest. The total amount of money you have saved should keep you on track for retirement.
Your savings account should keep money that you need for emergencies. Don’t keep too much money in savings, because you’ll lose money to inflation. Most of your free cash should be kept into low-cost exchange traded funds, like the Vanguard S&P 500 fund.
Some websites say you should have 11x your salary saved for retirement by retirement age. However, generic advice like this doesn’t take into account your lifestyle and may leave you without enough savings.Click to Tweet! Please Share!Click To Tweet
Summary: Saving $500 a month for retirement
As you can see, saving $500 per month for retirement can be enough. The most important part of saving for retirement is your timeline and rate of return. Most individuals will be ok investing $500 per month over the course of 30 years or more.
However, you should take the time to plan out your retirement needs. Start by estimating your required expenses in retirement and adjust for inflation. Divide by 4% (safe withdrawal rate) to determine your required investment principal.
Don’t keep too much money in your savings account. Savings accounts are good for emergency funds, where you need quick cash. Inflation will eat away at the purchasing power of your savings account over time.