According to the U.S. Bureau of Labor Statistics (BLS), the median wage for workers in the fourth quarter of 2019 was $48,672 per year for all workers over the age of 16, and $45,552 for all workers between the ages of 25 to 34. A good rule of thumb is to save 15% of your pre-tax income each year for retirement. As this is a long-term investment, we want to look at the historical performance of the stock market to get an idea of how this money can grow over time. The average annual return of the S&P 500 over the past 100 years is just over 10% assuming dividends are reinvested. Even adjusting for inflation over this period (CPI), the annualized return is 7.4%. Plugging these numbers into a retirement savings calculator (I used tells us that a 30 year old making a $45,552 annual salary and saving 15% in a traditional 401(k), factoring in a 2% annual salary increase, no employer contribution, and an average annual return of 7.4%, will have $1,337,359 at age of 65, which will grow to $1,996,510 at age 70. If they contribute 20% under these assumptions, they will have $1,783,143 at age 65, which will grow to a whopping $2,662,010 if they work until age 70, which will also maximize their Social Security benefit.

Pretty impressive, right? What this requires is very simple, but so very hard: self-discipline. The way to think about it is like this: PAY YOURSELF FIRST! When you get that job and look at your salary, remove 15%, and then make your budget. And if you can save 20%, all the better! The key is to live not on what you make (that’s living paycheck to paycheck with no plan for the future), but on 80-85% of what you make, and save the rest. Planning from an early age will allow you to retire on your terms and in your time. So what if you were late to the game? Take a look at this:

Beginning Age Annual Salary* % Amount Contribution Retirement Age Balance at Retirement
30 $45,552 15% 65 $1,337,359
30 $45,552 15% 70 $1,996,510
30 $45,552 20% 65 $1,783,143
30 $45,552 20% 70 $2,662,010
40 $54,444 15% 65 $678,834
40 $54,444 15% 70 $1,053,834
40 $54,444 20% 65 $905,113
40 $54,444 20% 70 $1,405,113
50 $54,028 15% 65 $245,274
50 $54,028 15% 70 $418,712
50 $54,028 20% 65 $327,032
50 $54,028 20% 70 $558,282
*median annual salary, 4th Qtr 2019, U.S. Bureau of Labor Statistics, assuming 2% annual increase.

These numbers tell a story, and there is a moral to this story. Pay yourself first, start early, and stay disciplined. Be sure to save outside of this tax deferred account, because accessing these funds before the age of 59 ½ typically comes with a 10% penalty on top of the ordinary income tax consequences. Your retirement funds should not be tapped for a down payment on a house or your children’s education; you need to provide for those by saving out of current earnings, utilizing a tax-advantaged 529 plan for education costs, and keeping the retirement assets for retirement. The average U.S. life expectancy in 2019 was 78.87 years, and it is projected to rise to 88.68 by the end of this century (United Nations World Population Prospects). You don’t want to run out of money before you get to the end of your story, so act now and get started!