This is like a super conservative estimate:
Assumptions:
1. At age 25- Salary of $3k. Saves 30% of annual salary.
2. Saves and invests at 4.5% returns
3. Salary increases at 5% until age 30, thereafter increasing at 3% until age 40. Savings correspondingly increases too.
4. Salary reaches a max of $5k until age 45. Salary drops to 4k thereafter until age 55.
I think saving 30% of your salary annually is not that difficult right? I haven't even take into account of all the bonuses during the year end! 4.5% returns in investment is attainable, most achieve at least 7-8% for the better investors. Well if you manage to get at 5% returns, you can achieve $1m at age 53 :) calculation done.
There is no secret, the compounding effect is most powerful and benefits most during the early stages so one should really start investing and saving early.
Investing early case scenarios:
Let's further take a look at Peter and Mary case scenarios. Both of them save and invest at $700 per month, or $8400 annually. However, Peter only started saving diligently at age 35 whereas Mary started at age 25, about 10 years early.
Their portfolio at age 60:
As you can see, Mary has about $700k+ in her portfolio whereas Peter has only $400k+. That's such a big difference of $300k+!
If you do not invest AT ALL
Lastly, if you do NOT invest at all. If you were to save 30% of your annual salary and put all into the bank... ok last just assume you put all into fixed deposits as it is very safe and secure. The return is 1%.
The graph has explained itself. Your portfolio will only be 50% of what the 4.5% return portfolio have, even if both saves at the exact amount of $700 per month.
The conclusion of this post is: Save and invest early, save and invest consistently!
