Matt Krantz / USA Today
Q: How little can I invest a day and still retire?
A: Some investors are taken aback by the large sum of money they need to save to retire in style. What’s the bare minimum one must save to simply retire in a modest way?
Many variables go into this sort of calculation. But the absolute minimum someone should invest a day to retire is roughly $20.55, says T. Rowe Price assuming the person makes the national average of $50,000 a year in income.
This amount, though, requires aggressive leaps of faith and assumptions. Saving and investing this little requires increasing the amount invested by the rate of inflation each year. So with 3% inflation, you need to save and invest $21.17 a day next year.
This number also assumes you’ll spend less in retirement than you do now, which is a big leap with seniors being more active. The $20.55 a day rate of investment will replace 50% of your income. Assuming that Social Security will still pay the way it does now, a somewhat controversial stance, Social Security plus your $20.55 a day in savings will replace 75% of your income in retirement.
Don’t think that $20.55 a day will cut it if you start investing when you’re 40 years old. The rule of thumb to invest 15% of your income only holds when you start young, preferably in your 20s, and invest in a broad portfolio of stocks and bonds, says Christine Fahlund, financial advisor at T. Rowe Price.