Want $1 Million in Retirement? Here’s how much you should invest today
A good retirement goal is $1 million. It can give you a nice nest egg to withdraw cash as needed, or you can invest it in high-yielding dividend-paying stocks or a diversified exchange-traded fund that brings you recurring income. But how much do you need to invest to realistically reach $1 million? It mainly depends on two things: first, at what growth rate you expect your investments to grow, and second, how many years of investment you have left.
Where should you invest and what returns should you expect?
A realistic long-term goal for investors might be the S&P500‘s average, which is about 10% per year including dividends. Over the past decade, total index returns (including dividends) have been around 240%. Focusing on growth stocks can be a way to outperform the index; for example, drug manufacturer Eli Lily, and managed healthcare company UnitedHealth Groupeclipsed those numbers with total returns of 875% and 1,000%, respectively, over the same period.
The healthcare sector, as a whole, is known to offer investors an excellent option for long-term gains. Companies in this sector not only offer long-term stability due to the nature of the products and services they offer, but they also possess attractive growth potential. And they can be resilient investments. This current bear market is a stark reminder of how quickly investments can crash with the S&P 500 down 18% year-to-date. However, Eli Lilly and UnitedHealth continued to outperform the markets this year, with their shares up 19% and 3%, respectively. Even the SPDR Fund for Healthcare is only down 8% this year; there is no shortage of quality stocks in the sector.
When planning for your retirement, it is important to balance security and growth. Healthcare is essential and this can make manufacturing a safer investment option than technology or even consumer goods. And by targeting companies that are still looking for growth with strong fundamentals, like Eli Lilly and UnitedHealth, you can put yourself in a great position to generate strong earnings in the future.
The more years of investment you have left, the less you need to invest today
The next key variable to consider is the number of years of investment. After taking into account an assumed growth rate of 10%, this will help you determine how much you should invest now. The sooner you start investing, you are always in a much better position. But the downside is that when you’re young, you might not have as much money to put aside for stocks. The good news is that you can always make up for lost time by investing more money.
Here’s how much you would need to invest at different stages of your life if you were to achieve average annual gains of 10%:
Another assumption here is that you retire at age 65. Although $13,719 seems like a small amount to invest, with 45 years of compounding those 10% gains, the value of your investment would increase by 7,189%. This means that your investment would be worth almost 73 times what it was worth when you first invested the money. The loss of investment years is evident at age 50. With only 15 years until retirement, your investment would increase by a more modest 318% if it averaged 10% gains per year. By then, you would need close to $240,000 ready to invest in the stock market to have a realistic expectation of reaching $1 million in retirement.
Reaching $1 million in retirement isn’t an unattainable goal, and knowing how much you’ll need to invest at a certain age can help you plan ahead and prepare for a brighter future.