So, how much are you trying to save for retirement?

[Ima saver]

Oh steve, you know we all love you! I would like to have about 1.5 million in savings to live on!!

[Dinadur]

Seeing as I wont be retiring until at least 2050... I would would like to save at least $5,000,000 (in future money) At my current savings rate I am on pace for around $3,000,000 assuming 10% annual growth. With 3% inflation this would amount to $814,660.15 in today's dollars. At some point I will need to increase my income significantly to reach my goals because even as a single guy with two roommates I am not on pace and I plan to marry and have children some day (and not live in an apartment forever =)

[jc3900]

If any of you math savy and would like a good model for stock market growth, I have got it. Now, this is assuming you have your money in a roth. The amount at the end is in real dollars, not inflated future dollars. This also increases your annual investment with inflation.

P=Initial Balance
D=Annual Investment
I=Rate of Return, 10% return is written 1.1
R=Inflation Rate, 4% inflation is written 1.04
T=Time(years)


Forumula as follows:

(PI^T + DI(I^T-R^T)/(I-R))/R^T

Example:

P=200,000
D=7,500
I=1.08
R=1.03
T=30

(200,000(1.08^30) + 7,500(1.08)(1.08^30-1.03^30)/(1.08-1.03))/1.03^30=1,338,740$

[jc3900]

How much to retire.

Here is a formula that tells what the remaining balance on your retirement portfolio given certain criteria. Oh and the amount taken out for retirement is increased with given inflation rate. The remaing balance is in real dollars and not inflated future dollars. This formula assumes that you take out your money and the remaining balance is then invested for that year.

P=Amount saved for retirement
D=Annual amount taken out for Retirement
I=Rate of Return. Example, 10% return written 1.1
R=Inflation Rate. Example, 4% inflation written 1.04
T=Time(years)

Formula as Follows

(PI^T - DI(I^T - R^T)/(I-R)) / R^T


Example: What is the balance after 40 years in real dollars?

P=1,000,000
D=35,000
I=1.05
R=1.03
T=40

(1,000,000(1.05^40) - 35,000(1.05)(1.05^40 - 1.03^40)/(1.05-1.03))/(1.03^40)=30,000