Recently I fielded an interesting question from a young investor: “How can an average college grad accumulate $1 million?” Now, $1 million is not what it used to be. It is certainly not the ticket to the good life that it was 20 or 30 years ago. But it’s still a really nice down payment on it. Plus, they always say the first million is the hardest. I decided to conduct a little thought experiment to determine what it would take someone graduating from college, from a standing start, to accumulate $1 million. According to the National Association for Colleges and Employers, the average starting salary for a college graduate was about $45,000. Additionally, the Bureau of Labor Statistics shows that the unemployment rate for those with a bachelor’s degree or higher is 3.2% as of November. So it seems like a good assumption that a bachelor’s graduate could reasonably expect to find employment, even in today’s slow growth economy. I constructed a little spreadsheet with the following assumptions:
And the result: 25 years. Which means if you started at age 22, you could reasonably expect, depending on your investment returns, to have $1 million by age 47. There are some interesting details in this thought exercise. If you follow the assumptions above, you will be saving over 50% of your income by the time you are 50. I suspect that this is not a reasonable assumption for most people (although it works great for this guy). If you change the assumptions to stop raising your contribution level once you hit 25% of your salary (year 11), then you don’t hit a million for 28 years, or a decrepit 50 years old. How about if you start saving 25% of your salary in Year One, and never change it? Same result: 25 years. How about higher investment returns? At a 7.5% average return, you shave one year off your goal and get there in 24 years. What can we learn from this exercise? Here are three important things:
The good news: Once you reach the $1 million mark, it gets easier. If you never contribute another dime, you can expect to get your second million 12 years later; and your third, nine years after that. Maybe the first million really is the hardest. Take care, Brian McCann, CFP®
This article originally appeared on Nerdwallet.com. This article appeared in The Christian Science Monitor. Comments are closed.
|
DisclaimerNote: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional. Archives
June 2020
Categories
All
|
(415) 758-2668
Brian@bootstrapcapital.net |
Copyright © 2020 Bootstrap Capital LLC