Investing

How to Retire With $2 Million on a Teacher’s Salary | The Motley Fool

Although teaching doesn’t exactly have a reputation for being a highly paid profession, according to a study from Ramsey Solutions, it’s one of the top five careers for creating millionaires. That’s probably because the profession tends to provide consistent work and frequently involves automatic enrollment in the school system’s retirement plan.

As a result, the teaching profession provides one of the clearest examples of why starting early is so important when it comes to retiring comfortably. Indeed, if you want to know how to retire with $2 million on a teacher’s salary, that’s the most important lesson of all — start saving early.

Image source: Getty Images.

How the math works out

The following table shows how much you need to invest each month to wind up with $2 million at age 65, depending on how old you are when you start and what rate of return you earn along the way.

Starting Age

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns

22

$233.43

$446.93

$825.59

$1,459.24

25

$316.25

$572.90

$1,004.27

$1,692.10

30

$526.78

$871.88

$1,403.79

$2,188.83

35

$884.76

$1,341.96

$1,991.01

$2,881.64

40

$1,507.35

$2,102.99

$2,886.03

$3,890.07

45

$2,633.77

$3,395.47

$4,328.62

$5,452.94

50

$4,825.44

$5,779.71

$6,877.14

$8,127.09

Data source: author.

According to the National Education Association, starting teachers’ salaries clocked in at around $41,163 in the 2020-2021 school year. That’s about $3,430 per month. As a result, there’s a potential path to multimillionaire status that involves starting out as a 22-year-old teacher fresh out of college, investing around 7% of your salary in the market, and just holding on.

That’s where automatic enrollment is such a powerful tool. In Minnesota, for instance, teachers contribute 7.5% of their salary toward their retirement plan — with the school system also contributing. As a result, it’s quite possible for a career teacher to wind up with $2 million by retirement at 65.

Most teacher retirement plan contribution formulas are based on a percentage of the teacher’s salary, so as that salary increases over time, so will the actual dollar amount getting invested. Those increases are important for any teacher looking to retire with $2 million, as market returns are not guaranteed. While long-run stock investment returns have been near that 10% rate, the future may not be as bright. As a result, investing a bit outside of the teachers’ retirement plan might be a prudent idea as well.

Where else can teachers invest?

Like other Americans with salary-type income, teachers can contribute to IRAs as well as to their work-sponsored retirement plans. In 2021, people younger than 50 are eligible to contribute up to $6,000 to their IRAs, while those 50 and up can contribute up to $7,000. That’s an additional $500, or more if they’re old enough, that can be put to work on behalf of teachers looking to amass that $2 million nest egg by retirement.

That’s important because the market offers no guarantees that returns will be near that 10% annualized rate in the future. If you start early and invest a bit more, you can have a bit of a buffer in case the market’s returns aren’t as rosy. On the flip side, if you’re approaching retirement and recognize that you’re ahead of where you need to be thanks to those early investments, it’s always easier to cut back on investing than to boost it later.

And of course, anybody who wishes and is able to invest above and beyond one’s employer plan and IRA can sock away an unlimited amount of money in an ordinary brokerage account. Still, if you look at the preceding table, you’ll see that it all comes back to starting early. Waiting until later in your career to begin investing simply puts the dollar amounts needed to reach multimillionaire status out of reach of nearly all teachers’ salaries.

The clock is ticking — get started now

Thanks to automatic enrollment in their retirement plans and fairly consistent employment prospects over time, teachers can be well positioned to reach multimillionaire status by the time they retire. The key to their success isn’t a market-trouncing investment strategy or a fabulously high salary; it’s steady investing over time.

Fortunately, that particular tool is available to anyone with a steady paycheck. So whether you’re a teacher or any other professional looking to retire with $2 million, the most important thing you can do is get started now. The earlier you begin, the more time you’ll have on your side, and, as a result, the better your chances of success.


Most Related Links :
Business News Governmental News Finance News

Need Your Help Today. Your $1 can change life.

[charitable_donation_form campaign_id=57167]

Source link

Back to top button