A dollar today is worth less than a dollar a year ago…

Just look at one time richest man in the world Bill Gates. In 1999, at the peak of his empire, the Microsoft founder had a personal fortune of $101 billion. When you adjust for inflation, today, that would be equivalent to $144 billion.

However, in today’s dollars, Gates’s net worth now stands at $124 billion. So Gates actually lost $20 billion over the last 20+ years.

The fact is that things continue to cost more and more money, which means your retirement is worth less and less every year if it’s not growing with the rate of inflation.

You might be thinking you need at least $1 million to retire, but chances are when you get to retirement, that might not be enough money to live out the rest of your years in comfort.

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Fortunately, building a nest egg of $1 million is pretty easy to do if you’re smart about building a retirement. You just need two things, a decent rate of return and time.

Have a look at the table below, which quantifies how long it will take to become a millionaire based on how much you save each year along with your annual return on investment.

Here you can see if you saved $5000 every year at an average rate of 8%, it would take you 36 years to become a millionaire.

Becoming a millionaire is hard work, it takes a lot of time and dedication through saving and investing. Going with get rich quick schemes or investment strategies that involve making huge returns over a short period won’t end well.

The more money you can make, the more risk you have to take on and too much risk usually equals disaster. Do you know anybody who bought a rich quick scheme and made it to early retirement?

You can get there, but by making smart investments and putting the power of time on your side. For those who start saving and investing just a few years before their friends can have hundreds of thousands of dollars more after that money compounds for 30 years.

Every year and every dollar makes a difference. Some years may not be the best, but throughout a career, the saver and investor will have a much more robust retirement portfolio versus those who start thinking about retirement late.

Looking at the S&P 500 over the past 40 years, the average rate of return has been 11.8%. That’s huge! That counts the financial crisis of 2009 and the .com bust of 2000, and still, investors received a rate of return of almost 12%.

This is why you need to own stocks and options to make the best returns for your portfolio.

So how much money do you really need in retirement? Not everybody needs the same amount. A common rule is about 70% of your annual salary. So, if you make $100,000 per year, after retirement, you should expect to spend $70,000 a year to maintain the same standard of living.

However, this is a case-by-case situation. After you retire, maybe you don’t need as much. Your house is likely paid for, and your children are out of the house, so your costs could be substantially less. On the flip side, maybe you want to live it up in retirement. Perhaps you want to pick up a new hobby, travel the world, or eat out every night. It depends on how you want to live when you retire.

The following list, created by Fidelity, can help make sure you’re saving enough throughout your retirement:

  • By age 30: you should have one times your annual salary saved
  • By age 35: two times your annual salary saved
  • By age 40: three times your annual salary saved
  • By age 45: four times your annual salary saved
  • By age 50: six times your annual salary saved
  • By age 55: seven times your annual salary saved
  • By age 60: eight times your annual salary saved
  • By age 67: 10 times your annual salary saved

Hopefully, you’re already thinking about retirement and these guidelines to get you on track to where you want to be.

However, to know exactly how much you need retirement, the best way is to think about all of your expenses and how much you plan to spend every month along with all your extracurricular activities, then calculate how much you’ll need so you can live a comfortable life.

One thing’s for sure, no one’s ever complained about having too much money in retirement, so save and invest whenever possible.

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Chris Douthit
Chris Douthit

Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of OptionStrategiesInsider.com. His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon.