HomeMost PopularWhy Accumulating $2 Million for Retirement Is Essential

Why Accumulating $2 Million for Retirement Is Essential

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It’s no secret that a vast majority of Americans are poorly prepared for retirement. In 2022, the median retirement savings for American households stood at $87,000. Data from the Federal Reserve showed that individuals in the age group of 45-54 years had a median savings of $115,000, while those in the 55-64 age group had $185,000. However, these figures are overshadowed by significantly higher mean savings due to a small number of high earners and individuals with high net worth.

So, the pressing question is: how much should one aim for to ensure a reasonably comfortable retirement? The answer is not singular, as it depends on various factors such as the location of retirement, income (and expenses) post-retirement, eligibility for Social Security and Medicare, and existing debt burden. Individual circumstances may bring additional variables into play.

The Impact of Inflation on Retirement Goals

Historically, the retirement benchmark for a couple in the early 2000s was set at $1 million for a comfortable retirement. However, this figure has been steadily increasing due to the impact of inflation. While the past two decades saw low inflation rates, the scenario changed significantly following the 2020 pandemic. Analyzing the inflation’s impact from 2001 to Oct. 2023, it becomes apparent that the target of $1 million in 2000 was ambitious for a large portion of the population. Thus, a more realistic figure would be around $750,000.

Given the actual official inflation rate over the last 23 years, the purchasing power of $1.3 million today is equivalent to that of $750,000 in 2001. Calculating the retirement target amount for individuals aged 40, 45, and 50 who intend to retire at 62, an assumed average inflation rate of 3% yields a requirement ranging from $1.8 million to $2.5 million, depending on the current age group.

  • 50-year-olds should target $1.85 million at age 62.
  • 45-year-olds should target $2.15 million at age 62.
  • 40-year-olds should target $2.5 million at age 62.

Evidently, individuals above 40 years (but below 55) today should set their sights on accumulating at least $2.0 million.

Strategies for Achieving $2.0 Million in 15 Years

To achieve such an ambitious target, retirement savings must be prioritized. Assuming an initial capital of $250,000, a couple in the 45-50 age group aims to save 16% of their annual gross income of $140,000 while also benefiting from a 70% employer match for the initial 6% of contributions.

Strategy 1: High Growth Strategy

Allocating 30% to 50% of the portfolio, particularly in high-growth stocks, is recommended to facilitate rapid capital growth. During the first half of the 15-year period, earning dividends may not be a primary focus.

Utilizing a stock screening process to select stocks based on predefined criteria plays a crucial role. Following this method and performing periodic reviews will ensure the portfolio’s robustness.

Selected High Growth Stocks:

Strategy 2: DGI (Dividend-Growth Investing) Portfolio

Allocating 30% to 50% of the portfolio to DGI aims to harness the power of dividends, which have historically contributed significantly to market returns. Constructing a DGI portfolio can be achieved through individual stocks, ETFs, or a combination thereof.

Model Portfolio Stocks (sorted on sector):

Even though dividend ETFs can effectively compound capital, a portfolio of carefully selected individual stocks can provide competitive performance.

Growth of Capital in the Next 15 Years:

Assuming an average annual growth rate of 10% over the next 15 years, the investors anticipate a target of $2 million. The presented strategies demonstrate the plausibility of achieving a 10% annualized growth rate.

Table 6:

Annualized Growth Rate

Ending Capital in 15 Years


$2.05 Million


$1.84 Million


$1.65 Million


$1.50 Million

Contingency plans should be made to address potential shortfalls due to market underperformance. These could involve increased contributions during down market periods and prudent management of discretionary spending.

Concluding Thoughts

Inflation consistently erodes the value of cash, making long-term investments imperative. Individuals in their 40s and 50s should prioritize retirement savings, as three critical factors largely determine retirement success: the timing of savings commencement, annual savings amount, and market and economic conditions. A well-structured retirement savings plan coupled with adaptable strategies can set individuals on the path to achieving their retirement goals.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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