Image: Money in nest © Steven Puetzer, Getty Images, Getty Images

These days, most people plan to retire in their mid-60s. This is the age range when Social Security benefits generally kick in, providing at least some modest level of monthly income. When that income is supplemented with outside savings, be it via traditional defined-benefit plans or the more recent defined-contribution 401k plans, retiring couples or individuals can expect to live comfortably.

To accelerate retirement, individuals need to get motivated in setting aside income for the years that follow employment. Market returns could provide a boost, but the past decade has proved difficult for investments in the stock market. Additionally, interest rates have been on a steady decline since the early 1980s. The current interest rate on a 30-year Treasury bond is only about 3%. This makes it extremely difficult to earn a sufficient income from money saved up over the years.

The chart below presents a brief summary of the savings amount needed to ensure a $50,000 annual income in retirement, based on yield percentages. Back when interest rates were closer to 5%, an individual had less of a savings hurdle and needed to accumulate only about $1 million by retirement. These days, the average blended interest rate (including a mix of shorter-term, medium-term and longer-term bonds) is only around 2%, which suggests that the savings amount needed has more than doubled to $2.5 million.

YieldSavings needed

The simplified information in this chart fails to take into account a number of other variables, including any Social Security income and the potential boost that can come from investing in equities or other assets that can grow over time (venture capital, private equity and hedge funds come to mind), as well as potential inheritance money or other income sources. However, it does indicate that individuals will likely need to be millionaires before they even consider retiring.

A volatile stock market, low interest rates and uncertainty over future Social Security benefits only add to the challenges for those who wish to retire early. Someone who plans to retire by age 50 instead of 65 will have 15 years less time to build a sufficient next egg. Using the retirement savings calculator here, you can see how some of the variables could play out to reach an annual income of about $50,000 per year.

A 35-year-old individual with an initial savings of only $10,000 would need to save approximately $33,000 a year to end up with $1 million by age 50. (Implicit in these estimations are an 8% annual return on a stock portfolio, a 2% annual return after retirement and a tax rate of 33%. It also assumes surviving 25 years after retirement, or until age 75.)

Starting a retirement plan early certainly has its advantages. If you begin at age 25, you'll need to set aside roughly $12,000 annually to reach the same savings goal. Conversely, waiting too long can make accumulating a healthy savings amount upon retirement nearly impossible. Under the scenario above, waiting until age 45 would require setting aside more than $150,000 annually to reach a seven-figure savings amount just five years later.

To accumulate between $1 million and $2 million by retirement, the best bet is to start saving modestly once you start working or by your early 20s. With decent stock market returns, this could mean retirement by age 50 is possible. Of course, attaining a six-figure salary could certainly help accelerate this objective, as could an inheritance, winning the lottery or some other stroke of luck, including double-digit annual stock returns.

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