Retiring early is the goal of many investors. It's easy to imagine a rosy future when the S&P 500 doubles every few years. But, even if the market returns to a more traditional growth rate, it's possible to accumulate an adequate retirement account with regular contributions and lots of time.

By Ann Coleman (TMF AnnC)
September 8, 2000

There's nothing like a good vacation to sharpen one's interest in early retirement. Whenever I come back from a long trip, it usually takes me about two weeks to convince myself that, yes, I really do need to work for a living.

But, I won't need to work forever.

I can say that with some confidence now, because I'm a couple of decades into saving for retirement, and I have seen how those savings grow when invested in stocks. Of course, I've been lucky to have been invested in stocks (through mutual funds in my pre-Foolish years) during one of the greatest bull markets ever.

No one knows how much longer the good times will roll, but I'm sure of one thing. Call it the lottery logic. If you don't pay, you can't win.

That's not a typo. You have to pay yourself first if you expect to win the retirement sweepstakes. Pretend you didn't get that last raise, consider it a payroll tax, or pay yourself six bucks a day to make your own lunch. Whatever it takes to get the cash out of your reach and safely into a restricted account. The nice thing about this game is that anyone who plays on a regular basis can win. So play!

Let's fantasize about what it would take to retire early, say no later than age 60. Just to make it interesting, let's assume that the good times are rolling to a halt and that the market is about to enter a period of lackluster growth. We won't speculate about bonanzas from fancy investing strategies this time, we will just look at basic market returns.

Hauling out my trusty Excel spreadsheet, I set up a scenario that assumes a single person started investing at age 20 in a Roth IRA, starting with an initial contribution of $2,000 and contributing the same amount each year. That's just $166 per month, well within most taxpayers' reach. (Couples can simply double the contributions and the results.) I set the portfolio's rate of growth at 12%, which is right in line with the historical growth rate of the market over the last century, but well below the 18% it has averaged over the last 20 years, and less than half the 28.5% it averaged over the last five years.

After 40 years of merely average growth (our 20-year-old investor would be 60), the account has reached -- hang on -- $1.7 million. (See chart below.) Inflation will have reduced the spending power of that cash considerably, but I would be willing to bet that most single folks could retire in modest comfort with that kind of nest egg, especially since it is reasonable to assume that with low growth we will also have low inflation. That's not always the case, but it is most likely.

I know what you are thinking. Who wants to wait around until they are 60? One reason is that the account has barely reached $540,000 by the time our mythical investor is 50. Most of the dollars roll in during the last few years when the account has reached a considerable size. A 12% increase in a $10,000 account is only $1,200, but a $12% increase in a $1 million account is $120,000.

If you're curious about how long it would take you to reach your retirement goal if your investments grew by only 12% per year, use the table below and find your current portfolio balance, then count the number of years until you get to your goal. (Remember that the chart includes a contribution of $2,000 and contributions are more important, even when the account balance is high, when investing returns are low.)

This is a much gloomier scenario than I actually expect. With a favorable global economic environment, the growth rates I've assumed could turn out to have been absurdly low. And, with some luck, Congress may increase the contribution limits for retirement accounts, which would certainly speed us all on the way to early retirement. But, it's nice to know that even if this wonderful economy we are in is only temporary and no new breaks are forthcoming from the government, average investors saving a small amount each month and earning an average rate of return could still expect to retire very comfortably if they pay themselves first.

Annual Contribution/Starting amount: $2,000.00
Annual Return: 12%
        End                 End
Year   Value      Year     Value   
 1   $4,240.00     21   $185,005.17
 2   $6,748.80     22   $209,205.79
 3   $9,558.66     23   $236,310.48
 4  $12,705.69     24   $266,667.74
 5  $16,230.38     25   $300,667.87
 6  $20,178.02     26   $338,748.01
 7  $24,599.39     27   $381,397.77
 8  $29,551.31     28   $429,165.51
 9  $35,097.47     29   $482,665.37
10  $41,309.17     30   $542,585.21
11  $48,266.27     31   $609,695.44
12  $56,058.22     32   $684,858.89
13  $64,785.20     33   $769,041.96
14  $74,559.43     34   $863,326.99
15  $85,506.56     35   $968,926.23
16  $97,767.35     36 $1,087,197.38
17 $111,499.43     37 $1,219,661.07
18 $126,879.36     38 $1,368,020.39
19 $144,104.88     39 $1,534,182.84
20 $163,397.47     40 $1,720,284.78