Final answer:
If you start investing for retirement at 45, you would need to invest around 15% of your pre-tax income per year. However, this amount can vary based on factors like expected rate of return and inflation. It may be more difficult to invest enough money for retirement at 45 due to starting late, financial obligations, and reduced time for compounding.
Step-by-step explanation:
If you wait until you’re 45 to begin investing for retirement, the amount of money you will need to invest per year will depend on your desired retirement income and the expected rate of return on your investments. As a general rule, financial advisers suggest saving around 15% of your pre-tax income for retirement. So, if you're making $50,000 per year before retirement, you would need to invest $7,500 ($50,000 x 0.15) annually. However, this amount can vary depending on factors such as expected rate of return, inflation, and life expectancy.
Investing enough money for retirement at age 45 can be challenging for several reasons:
- Starting late: Starting investing at 45 means you have less time to build a substantial retirement nest egg, compared to someone who started investing in their 20s or 30s. This can result in having to save and invest larger amounts per year to catch up.
- Financial obligations: At age 45, many people have higher financial responsibilities, such as mortgage payments, education expenses, and supporting their families. These obligations can make it harder to allocate a significant portion of their income for retirement savings.
- Reduced time for compounding: Compounding is the process of earning returns on your investments, and it becomes more powerful over time. By waiting until 45 to start investing, you miss out on the potential benefits of compounding over a longer period, which can limit the growth of your retirement savings.