How much do you need to save to hit the $1 million mark?

By Jon Bancks / Guest Column

Imagine this scenario: You’re 25 years old and working your first “real job.” A colleague, attempting to offer sage advice, tells you that if you want to be a millionaire by the time you’re 65, all you have to do is save the cost of a Starbucks latte – around $4 – each day.

Do you believe them? In order to answer that question, let’s evaluate both the rules of retirement and our current fiscal climate.

First, let’s investigate the two rules to formulating a successful retirement.

The basic message of “pay yourself first” is the primary rule to laying the foundation for a successful retirement. You must be a diligent saver.  How much should you pay yourself?

The second rule for a successful retirement is to stay invested in order to benefit from compounding. Compounding is simply earning interest on your interest.

Following the rules for a successful retirement is crucial. However, the outside environment will also dictate retirement options, so let’s investigate those, too.

Retirement for millennials and the generations to follow is developing into a monumental problem. For the past few years, we have watched the issues in Europe escalate with regard to their social retirement programs.

America may be better off, but we are still faced with similar issues – from an under-funded Social Security program, unfunded state and private pensions, and health care issues. Unlike the baby boomer generation, most millennials will never benefit from a pension unless they work in the public sector.

Millennials enter the future like no other generation – strapped with the expectations for lower market returns and the uncertainty around the bedrock of America’s retirement foundation.

Back to our question: Will saving $4 per day ($28 per week) over 40 years make you a millionaire?

Our wise colleague didn’t take inflation into account. Inflation is everyone’s enemy in reaching retirement. We are currently in a period of low inflation. Millennials have never known high inflation. Between 1979 – 1981 inflation averaged almost 12 percent. Historically, inflation has averaged 3.25 percent annually since 1914 (

Considering inflation, our 25-year-old needs to save far more than one $4 latte per day. At the age of 25 – with 40 years until you reach 65 – your $1,000,000 goal has inflation adjusted purchasing power of $278,225 today. Ask yourself, “Could you retire on $278,225 if you were 65 today?”

When your colleague suggested you save $4 per day to be a millionaire, in reality you need 15.25 percent annually in order to have an inflation adjusted $1,000,000 at 65.

Can you earn 15.25 percent annually on your investments?  Perhaps, if you’re smart or lucky enough to pick the right stock.  The long-term average for U.S. stocks is 8.2 percent ( To reach your $1,000,000 by 65 at 8.2 percent and cover inflation, you would have to save $23 per day.

Another factor that we didn’t address that will have tremendous impact on your retirement – the taxes.

So, when your colleague chides you for your morning latte, let him know that you realize that you require more than just $4 per day to reach that millionaire goal in 40 years.

Simple advice to remember about your retirement:

  • Start saving – the sooner the better. The more time you have, the bigger the benefit from compounding.
  • Don’t plan on our politicians – new or old – to bail us out.
  • Set realistic expectations for returns. You can hope that inflation stays low. Or you can adjust your savings targets in order to hit your long-term goals.
  • Diversify your financial holdings.

Next time you see me, the latte’s on me.

Jon Bancks, CFP® CPWA®, is a Financial Advisor and First Vice President, Morgan Stanley, The Bancks Halyard Group in Cedar Rapids, Iowa, a wealth management team focusing on multi-generational wealth management through goal-based investment advice.

The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.