Memo

RE: Summary Analysis of Retirement Savings Goal of $4,000,000

Retiring with a sum of $4,000,000.00 in my bank account is more like a challenge that a goal. Although this would make me the favorite wife, grandmother, sister, etc., planning for such a savings would carry immediate repercussions.

Many variables go into the funding of a retirement fund. The first variable that is usually known up front is the interest rate. To expect an interest rate of return of 7.5% of the investment is unrealistic. Interest rates vary according to the daily standing of the market, the condition of the economy during a certain quarter, political conditions, and many other smaller outside forces.

To make this example more realistic, I will assume present time, meaning that my age is 22, leaving me with two less years for savings, if option one were selected begin saving at the age of 20 for 40 years. I have already lost two years on that investment, which will in the end leave me almost $600,000.00 behind my goal, only losing two years. Also, to figure that I am a 20 year old with enough money to spend $1,322.83 per month for the next 40 years is almost implausible.

While starting a retirement fund 20 years from now is also an extreme, it makes slightly more financial sense. This is assuming that a 42 year old professional has more financial stability to be able to sacrifice a larger monthly sum: $7,223.73. Even still, I may be looking towards saving for college educations. One year of college would be bought with four months of savings.

Maybe most plausible is plan 2: saving $1,969.70 per month beginning in five years. Again, this could be a financially volatile time (mid-20s).

The final analysis of funding a retirement is that it is never too soon to begin. It is better to start earlier than later, maybe jumping in the game with graduation money, or when interest rates are good. By starting early, one is given the flexibility to contribute as necessitated by current financial conditions; in some months giving more or less than others.