I've been haunted by the statistic I quoted from Rick DeBruhl in my last blog post that the average 50-something year old American has only $57,000 in her 401K (including IRA, I suppose). I've experimented with Hugh Chou's excellent calculator for accumulating a tax-deferred corpus and then dispensing it gradually, as required by the IRS, at age 70. The assumptions I made were that realizing how inadequate her savings would she would thereafter put $750 each and every month into the 401K or IRA, and it would earn, by choosing wisely, 7% per year until age 70 and then 6% thereafter.
$750/ month is $9000 per year but it compounds better if it's done monthly and it also becomes a routine like paying the mortgage or rent. Also 7% per year before retirement and 6% afterwards are conservative goals which can likely be met.
If she does this simple program, she will have $333,766 at age 70. Using the IRS required minimum withdrawal at age 70 (do it in 1/12's monthly!), it would start paying out at about $2000 per month or about 24,000 per year. By age 80 it is paying $37,407 per year or a bit over $3000 per month and at age 90 $54,962 or nearly $5,600 per month. There is also a column which shows the purchasing power results after an assumed 3% annual increase in inflation, the average since 1946. Add on $1000-2000 per month in Social Security payouts, and one could live a modest existence.
We can experiment and see how much we'd need to put in to make the payouts even larger, but I'd recommend leaving the annual earnings increases fairly low in order to be realistic. If you find this was a helpful exercise which can change your future, think about making a small donation to Hugh Chou at his site. Here is the calculator I used: http://www.hughchou.org/calc/irawith.cgi
Bear in mind that I am an amateur myself, but this "is" something you can do at home.
(Click on the tiny image to enlarge to original size.)
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