When we’re trying to save a specific dollar amount by a certain age, we need to consider a number of variables. Here’s what we need to know:

  • Number of years we have to save
  • Final goal amount
  • Amount we’re starting with
  • The rate of return on our savings (or investments)

For this article we’re going to assume we want to save $1 million by the time we’re age 65, starting with $0. Why $1 million? No reason, other than it’s a nice round number and we’re simply trying to illustrate a point. We’ll assume a 7% annual rate of return.

How much do I need to save each year?

The table below shows the amount you need to save each year with different starting ages.

Required annual savings to have $1,000,000 by age 65:

20 $3,500
30 $7,234
40 $15,811
50 $39,795
60 $173,891

*Assuming a 7% annual rate of return

Most people intuitively know that if they wait longer to begin, they’ll need to save more each year. What many people don’t realize is how much more they’ll need to save every year. By waiting 10 years and starting at 40 instead of 30, you need to save more than double your annual savings to hit the same goal. And this discrepancy gets even bigger if you wait until 50 or 60.

Why not just invest at a higher rate of return?

True – if you can make 10% a year you can save less than if you make 7%. However, we prefer to focus on things we can control, and unfortunately, investment returns aren’t one of them. We can (and should) utilize investment allocations and strategies to try and maximize returns, but there isn’t a way to guarantee those returns (unless you’re buying some sort of insurance product, which have their own pitfalls. See this article1). The last thing we want to do is assume an unrealistic rate of return and find ourselves playing catchup because we didn’t save enough early on.

What to focus on

The number one factor for achieving financial goals is investor behavior. Once we have determined our savings goal, we need to create a savings plan. This always boils down to simply spending less than we earn. The only way to achieve long-term goals is by creating financial breathing room in our day-to-day lives (see this newsletter2 for more about margin). It doesn’t matter how much income we have – if we spend less than we make, we’re able to save for the future.

Needless to say, spending more than we earn, by using debt and credit cards, has a detrimental effect on long-term goals. Delayed gratification is a sign of financial maturity, so if we can be mature enough to delay some of our immediate desires we’ll actually hit our long-term goals.


These are the opinions of Dan Funderburk and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

Dan Funderburk is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

Copyright ©2018 Dan Funderburk. All Rights Reserved. Commercial copying, duplication or reproduction is prohibited.