As noted, that example used a conservative 5 percent annualized rate of return. Historically (dating back nearly 100 years), if you kept 70 percent of your retirement savings in U.S. stocks and 30 percent in U.S. Treasury bonds — a 70/30 portfolio — you would have earned more than 7 percent annualized each year. (Annualized means the “average” return over all the years; in any given year returns will be a lot higher and a lot lower than the average annualized return.)
Using a 7 percent annualized gain: If you start saving $400 a month – that’s $100 a week, or about $13 a day — at age 22, you’ll have $2.18 million by age 72. If you start saving at 37, and set aside the same $400 a month, you will have $720,000. No typo there. Just compound growth doing its thing.
An aside: Before you assume that $720,000 is plenty, slow down. Inflation is not your friend. What costs you $100 today will cost $270 in 50 years, assuming a very benign 2 percent inflation rate.