We often get asked by late bloomers what they can do in order to catch up. To be honest, there isn’t a shortcut for this, aside from investing more money. Starting later than 45? Invest more money. Want to retire before 65? Invest more money. Want to retire with more than $1 million? You know the drill 🙂
“But $1 million won’t be worth much after accounting for inflation!” Right. These numbers are adjusted for it. So each of our four emoji friends will have $1 million in TODAY’S dollars whenever they turn 65. How was this calculated?
First, we are assuming a 10% annual rate of return because that is the average historical return of the stock market over the past 100 years. And we will adjust it for inflation, at an assumed rate of 3% annually. Even though inflation today is at a whopping 7.5%, over the past 100+ years it has averaged 3%. So if you take 10% and subtract 3%, you get 7%, which is what we used