How Much Do You Need to Invest For Retirement?
A comfortable retirement is impossible for billions of people around the world. It’s depressing, and it’s true. The other day, someone emailed me a question about how he could retire quickly, even though he had less than $10,000 and less than 5 years to retirement age. He wanted to know if I could show him how to retire with those funds — “secret” investments or something or other.
I had to be frank: he probably couldn’t retire without government support, because he didn’t have the money. It’s sad, but it’s true for tons of people, and I think honesty is vital here. Some people can’t retire comfortably, because they just don’t have the money.
Why is retirement impossible for almost everyone? Because to retire at the age of 65, you’re going to need to invest at least $10,00o every single year — without any exceptions — just to make $40,000 a year for retirement income after inflation. I prove the math below.
You’re Going to Have to Invest $10k a Year
All of the math below is fairly simple, and can be done with any basic investment calculator, like my favorite at MoneyChimp. I was just messing around with an investment calculator:
0 starting capital
10k added annually
40 years to grow
4% “real” growth = 8% growth – 4% inflation
+________________________
39,530.6144 per year in today’s dollars
The math is pretty simple, and this is what it means: you’re going to need to invest $10,000 every year for 40 years in a row, without fail, in order to retire on a $40,000 investment income. This is the absolute bare minimum you’ll need to invest… chances are, the real number for most people is closer to $20,000 per year, as I’ll explain below.
This is before taxes, too. Don’t forget, taxes are probably going to increase by the time you retire. They’re going to have to because the real national debt is over $100 trillion. Yes, that’s trillion, not billion.
It Can’t Be That Bad, Right?
Of course, we can’t take the numbers explained above completely out of context. The numbers above are also assuming the retiree wants to live off the money and doesn’t plan on dying with some left over.
Most financial advisors plan on death. Which I think is odd, but I also kind of understand why this is the case. Personally, I plan on leaving behind most of my wealth to my children and wife.
This also doesn’t include social security or any other kind of retirement booster/help that most retirees are going to claim.
But Wait, It Gets Worse
This is also based on historical and common “claims” of low inflation and high stock returns — neither of which are very realistic. This is horrifying, but it’s also true. Here are the two reasons:
Inflation is higher than the official 4%. I’ve talked about the real inflation rate before, and you can see more info here. Right now the real inflation rate is something like 8%. This means that most people will never be able to get a full-time passive income by buying average stocks.
And a lot of people will actually lose money in the stock market, meaning they’re not even saving money over the long haul. Ouch. If most people knew this is how the stock market really worked, a whole lot of investment advisors and economists would be out of a job, and a lot of politicians would get fired. There’s a reason this isn’t commonly talked about, and the government goes to great lengths to lie about inflation.
But wait, it gets even worse. The stock market doesn’t even typically provide 8% returns every year, even though that’s what inflation is. Brace yourself, and read this article. Over the last decade, stocks haven’t even performed at all.
Sure, over the course of a billion years the last decade doesn’t matter too much statistically… but planning your retirement around an investment that may or may not take a 50% collapse every couple of decades is like playing retirement roullete.
What are the alternatives? What’s a good way to consistently get at least 10% investment returns? Subscribe right now, because tomorrow I’m publishing a guide that answers that question with a step-by-step plan for beginners.
So What Does This Mean for You?
The idea that you need to invest $10k every year to retire is a little depressing for most folks, because they’ll probably never hit that kind of retirement without government or corporate help. It’s sad, but true.
And those numbers are extremely optimistic. If we change the calculator and plug in realistic numbers, like 4% average return for the stock market and 5-8% loss via inflation, then … life just gets really depressing.
So what should you do? Simple. You need to beat the market. I know it sounds obvious, but stay tuned and subscribe… in the next few days I’ll be publishing a guide I’ve been working on that explains how you can beat the market, have steady gains year-after-year, and how to build a portfolio that won’t drop like a rock during a recession.
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