There is a retirement crisis in America. According to a 2019 survey by Charles Schwab, Americans believe they need $1.7 million on average to retire. However, the 2019 Survey of Consumer Finances sponsored by the Federal Reserve Board found that Americans aged 65 to 74 have only $426,070 on average saved for retirement. Median retirement savings are even worse, at $164,000. This means that half of Americans at retirement age have less than $164,00 saved, a far cry from $1.7 million.
So what can you do to reach this retirement goal? Invest, and start as early as possible. You can read about the benefits of starting to invest in your 20s here.
But what about your kids? Is there a way to help them retire comfortably without putting your own retirement at risk? There is, but it has to be done early. The best gift you can give to a newborn is the gift of investing, and you don’t have to give that much to have a big impact in the long run. You can help your newborn child retire with just the money you received this year from the stimulus checks sent out (and soon to be sent out) as part of the Covid-19 economic stimulus relief packages.
The first stimulus package passed in March gave $1,200 to individuals with an adjusted gross income of less than $75,000 and $2,400 to married couples with an adjusted gross income of less than $150,000. The next stimulus package is expected to provide $600 to individuals and $1,200 to married couples with the same income restrictions. That comes to $3,600 for a married couple, not including the money for children ($500 in the first package and $600 in the second).
While $3,600 might be enough money to pay your expenses for a month, it’s hardly enough to retire on. However, due to the power of compound interest, investing in the stock market can help your savings grow exponentially. On average, the S&P 500 grows about 10% a year. If you were to invest that $3,600 with a 10% annual return, your initial investment would grow to just over $1.7 million in 65 years, as shown in the graph below. That means that if you invested $3,600 on behalf of a newborn (such as in a custodial brokerage account), they would be able to retire on that money alone, assuming that they never touched it prior.
Of course, this ignores inflation and taxes on your investment gains, but the principle is still sound. If you think a 10% annual return is too high, you can see the initial investment needed to reach $1.7 million in 65 years with different annual returns in the following table:
| Annual return | Investment needed to reach $1.7 million in 65 years |
| 10% | $3,467 |
| 9% | $6,277 |
| 8% | $11,427 |
| 7% | $20,918 |
| 6% | $38,510 |
| 5% | $71,310 |
Don’t worry if you’ve gotten off to a late start. You can start investing later, but you will need to invest more money to reach the same target. The following table shows the initial investment needed for your children of different ages in order to reach $1.7 million by age 65 with a 10% annual return:
| Age | Investment | Age | Investment | Age | Investment |
| 0 | $3,467 | 7 | $6,756 | 14 | $13,166 |
| 1 | $3,814 | 8 | $7,432 | 15 | $14,482 |
| 2 | $4,195 | 9 | $8,175 | 16 | $15,930 |
| 3 | $4,615 | 10 | $8,992 | 17 | $17,523 |
| 4 | $5,076 | 11 | $9,892 | 18 | $19,275 |
| 5 | $5,584 | 12 | $10,881 | ||
| 6 | $6,142 | 13 | $11,969 |
Investing is a powerful tool to let your money work for you. If you use it right, you, and your kids, will be all set for a comfortable retirement.
Cozy Nest Egg 