Earning 6% with your retirement accounts is doable

Piggy bank in glasses with chalkboard

I suspect there may be some eye-rolling, but your retirement accounts really can average a 6% annual return.

They can even achieve that if they're invested in something as cheap and as simple as target-date funds.

That's an important point for us to make because we've dedicated this week to investing for the long haul, no matter where you may be in life.

Yesterday we launched a series of stories with how to start saving in your 30s, with advice tailored to those of you in your 40s and 50s coming later this week (tomorrow and Friday, to be exact).

One of the problems we're trying to tackle is that most Americans have no idea how much wealth they can accumulate, even with typical jobs and setting aside as little as 4% to 10% a year for most of their working lives.

The common attitude seems to be you scrimp and sacrifice for 20 or 30 years, and in the end, you've got what — $30,000? Maybe $60,000?

Chump change, right?

Hardly enough to ensure a comfortable retirement or even maintain your pre-retirement standard of living when combined with Social Security.

I can certainly understand why you might think that if you come from a family that didn't save much — and doesn't have much to show for their efforts.

That's why each of those stories comes with examples of how much wealth couples or individuals working in some of the most common jobs, can build for themselves.

Dave and Donna Miller

Dave Miller admits that he's always been a saver. So even though he and his wife grew up on small family farms and didn't have much when they got married, they were able to save $1 million for retirement over the course of their careers. Take a look at how Dave and Donna Miller built their wealth and and see how their tips and examples can help you succeed in your retirement planning.

I won't kid you. It's a lot easier, and the numbers will be much bigger, if you start in your 30s rather than your 50s.

But look at yesterday's story, and you'll see how an auto mechanic and waitress can save nearly $500,000 together. Or how it's possible for an electrician and retail salesperson to set aside $650,000. Or a registered nurse to accumulate nearly $800,000 on his or her own.

I think we can all agree that those are some serious sums that almost anyone could build a wonderful retirement around.

In each of those examples, you'll see we made one critical assumption — that those savers earn a 6% average annual return on their investments.

To achieve that, we expected the great majority of savings would be stashed in tax-deferred 401(k) plans or Individual Retirement Accounts.

Most 401(k) plans require savers to put their money in mutual funds, a type of investment that pools the savings of tens of thousands of people to buy a broad range of stocks, bonds or both.

I understand why that might unnerve first-time investors. The stock and bond markets move up and down at startling speed, for totally incomprehensible reasons.

You might be more inclined to put your money into something safer, such as CDs, Treasury bonds or a money market account.

But you have no chance of building the nest egg you'll need for a comfortable retirement by settling for the 1% or less those investments are currently paying.

You need the historically higher returns provided by the stock market to have any shot at success.

Vanguard Target Retirement Funds: 5-Year Returns

Fund Average Annual Return Past 5 Years Acquired fund fees and expenses
Target Retirement Fund 2010 5.95% 0.16%
Target Retirement Fund 2015 6.24% 0.16%
Target Retirement Fund 2020 6.32% 0.16%
Target Retirement Fund 2025 6.33% 0.17%
Target Retirement Fund 2030 6.33% 0.17%
Target Retirement Fund 2035 6.47% 0.18%
Target Retirement Fund 2040 6.70% 0.18%
Target Retirement Fund 2045 6.68% 0.18%
Target Retirement Fund 2050 6.70% 0.18%

Most 401(k) plans make it easy for first-time investors by offering what's called "life cycle" or "target funds."

The professional managers running these funds take greater risks with your money when you're young, buying a mix of stocks and bonds with the most potential to increase in price and boost the value of your 401(k) account.

Of course, those kinds of investments are the most likely to tumble if the market falls. But there's plenty of time for the market and your retirement savings to rebound.

As you get older, life cycle funds adjust their mix of stocks and bonds to take fewer risks and ensure your money is there when you retire.

Your account may not grow as fast, but it won't be as susceptible to downturns in the stock market, either. (Want to know more? Take a look at our 5 things you should know about target-date funds.)

But can they really earn an average of 6% a year?

I was on the Vanguard website the other day and looked at how its Target Retirement funds had done over the past five years.

Between Aug. 1, 2008, and July 31, 2013, the nine Target Retirement funds run by the giant mutual fund company earned average annual returns of 5.95% to 6.70%.

That covers the five toughest years for the U.S. economy since the Great Depression, yet those funds averaged 6%.

So, that seems like a very reasonable return for us to use — and for you to expect if you take a long-term view of your savings.

Those Vanguard funds achieved that, by the way, even though they charge incredibly low fees.

How low? From 0.16% to 0.18% a year.

We consider mutual funds that charge up to 1% a year to be acceptable options.

But really, why would you want to spend more if this is one of your options?