Save only $125,000 and become a millionaire.

Financial Fool. I am.  Are you?

Without sounding like an all out advertising for Motley Fool, I’m a big fan. Somehow, I stumbled across them back in 1999. maybe even earlier, 1996.  I don’t remember exactly.  Then, I read a couple of their books which are both great learning tools and entertaining.  I wanted to highlight one of their older Articles that is buried in their archives and not even viewable in my browser.

Retire on $125,000

Basically, the premise is this.

Your money will double every seven years if it compounds at the stock market’s average return of nearly 11% annualized over its lifetime.

Now, I know during these bear markets and the worst recession since the great depression, 11% return is unheard of.  The key here is over its lifetime.  Long Term. Not now.

The idea is if you can save $125,000 by the time you are 40, then you can theoretically stop saving, although I wouldn’t recommend it.

Why?  The power of compound interest.  The more money you save, the more money is compounded over a longer period of time which then allows you to get a good return.  Now, How do you get a 11% return?  Well, the stock market averages that return, then you add in if you save 10% of your income every year.  You’ll easily be able to get an 11% return.

Let’s look at a table for this double your money every 7 years.

Age	Money Saved
19	$15,625
26	$31,250
33	$62,500
40	$125,000
47	$250,000
54	$500,000
61	$1,000,000

Now, if you are like me, and you look at this and see age 19, $15,000 saved? Are you kidding me? I’m a college student and I have student loan debt bigger than that.  I totally understand you.  I think its very difficult for someone who is 19 to have that much saved.  However, I think it is very reasonable to think that by the time you are 40, you can save $125,000.  Think about it.  That’s 21 years, or roughly $6,000/year.  Now, you might think that is still unreachable.  Let’s calculate it.  If you started at $30,000/year income at age 22, and receive average 5% increases (some years will be less than that, some years will be more) in salary for 18 years, here’s how your savings could look:

Age	Salary with 5% increases	Savings rate at 14% year
22	$30,000	$4,200
23	$31,500	$4,410
24	$33,075	$4,631
25	$34,729	$4,862
26	$36,465	$5,105
27	$38,288	$5,360
28	$40,203	$5,628
29	$42,213	$5,910
30	$44,324	$6,205
31	$46,540	$6,516
32	$48,867	$6,841
33	$51,310	$7,183
34	$53,876	$7,543
35	$56,569	$7,920
36	$59,398	$8,316
37	$62,368	$8,731
38	$65,486	$9,168
39	$68,761	$9,626
40	$72,199	$10,108
Total Saved		$128,26

Now that looks feasible.  I know 14% is aggressive.  I am not including in this calculation any compound interest gains from the stock market.  So, if you were to save only 10% a year and invest it.  You’d get more money.  Still, then we theoretically could stop saving for retirement, because if we left our money in the stock market from age 40 to age 61, we’d be millionaires.

Can I do that?  I think I can.  Can you do that?  I think you can.