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If I go the distance and retire at 65, which is 20 years from now, will that target of a million still hold true?
$1 million net worth in 2018 dollars and your online Social Security statement says your age 67 full retirement benefit will be at least $30K at your current income level? No problem. Today, that's somewhere between 75th and 80th percentile. It won't be luxurious but you'll be plenty comfortable.
If you have $1 million in 2048 dollars after inflation erodes that to 40 cents on the dollar and you don't have 35 strong earnings years in the Social Security system? It would be very modest.
First thing is what type of job do you have? Is it one where personal accomplishments are rewarded via Merit Raises and Promotions, and are you a high performer to receive these? If yes, then plan on 3% annual raise increases over your career. If annual changes in compensation are tied to an "all employee" increase such as a union contract, then plan on 2% annual raise increases.
What is your annual Net of take-home pay? I am being conservative here and assuming that everyone spends what they have available. This Net value is after taxes, 401(k) contributions, 403(b) contributions, and after subtracting any after-tax contributions to brokerage accounts or other savings and investment plans.
3% increases for 20 years is a multiplier of ~1.8 whereas 2% increases for 20 years is a multiplier of ~1.5
Your current take-home multiplied by the appropriate factor is an estimate of your take-home pay in 20 years time.
Assume this estimated take-home is what you will require in retirement. Again taking a conservative approach that your expenditures will not decrease in the composite, some individual expenses will drop but others will increase, yielding a net of zero.
Subtract from this estimated take-home the value of any pension plan payments or payments from existing annuities that you are eligible to receive in 20 years time. Subtract from this the value of future SS payments.
Take the result and divide by 4%. Take this same result from above and divide by 3%.
These two numbers will give you an estimated range for how much you will require in personal savings in 20 years time.
Example:
High achiever earning $80K annually now.
No pension in 20 years and no current annuities.
Estimated SS benefits of $50K in 20 years (this is a SWAG value only!)
So the individual in this example is estimated to require somewhere between $2.35M and $3.13M in personal savings in 20 years for them to receive the retirement income necessary in 20 years to approximately equal to their accustomed standard of living.
Not a pretty picture, but it can be improved by planning for a reduction in your style of living. Start now by increasing your savings! This change will burn the candle at both ends - less income required in retirement to maintain your accustomed standard of living, and more savings to provide this income.
Notes: My $50K swag for SS benefits in 20 years may be too low, but it isn't the dominant factor. This estimate will become more accurate the closer you get to retirement.
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Do some rough modeling/estimating
