How Much Does It Take To Get To $1,000,000?
The club of investors who can claim to have a net worth of over $1,000,000 isn’t nearly as elite as it used to be decades but that doesn’t mean that being able to call yourself a millionaire carries any less allure. So many people think that obtaining the title of millionaire is an unobtainable Everest-like feat. Most don’t realize that once you crunch the numbers, a $1,000,000 portfolio isn’t really that far out of reach.
What if you heard that you could reach a million dollar portfolio for under $300 a month? That sounds reasonable, right?
Obviously, not everybody is going to get there with $300 a month. A couple of factors will make it easier to reach that target – age and income. The income part should be obvious. The more money you bring in, the more money you should be able to save every month.
You’ll find perhaps your greatest advantage based on how early you start saving. The person who starts saving their first million at age 25 will have a significant advantage over those that start at 45 years old or even 35. Let’s crunch some numbers to see the difference.
If you start with nothing at age 25 and manage an annual return of 8%, you will reach $1,000,000 at age 65 by saving about $290 per month. (A quick note about the expected return…. Don’t assume you’ll be able to earn more than this. You might be able to pull it off but expecting more leaves it more likely that you’ll miss your goals.)
If you wait to start until age 35, the amount you need to save each month jumps to almost $670 a month. Wait until age 45 to start and you’ll need to set aside about $1,700 a month. The goal of becoming a millionaire obviously becomes tougher the longer you wait to start.
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If you do happen to be a late starter though, all hope is not lost. There are some great tools and accounts out there that are available to make your journey easier.
Start with your workplace retirement plan. If you have access to a 401(k) plan, most employers still make a matching contribution on top of your own contribution. This is like free money so always contribute at least enough to earn your company’s full match.
One you’ve done that, look at your other options for tax-advantaged accounts. In most cases, you’ll benefit from contributing to a Roth IRA (or better yet, a Roth 401(k) if your employer offers one). Taxes can take away as much as a third of your investment return in a taxable account. With the Roth IRA, that money you’d pay in taxes remains in your hands as long as you keep it in the account until retirement age and the account has been open for 5 years. That can amount to a big difference when it comes to determining how much income you can generate in retirement.
Some of those big financial goals may not be so out of reach after all. Just know what it takes to get there and make sure you take that important first step.
Photo credit: Andrieux C. Querido
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This is a great article David. I recently turned 20 and mapped out my 5 year plan, and one of my financial goals was based around my net worth. I wanted to be worth 250k but the time I turn 25, but just started saving. I definitely want to hit my $1 million mark sooner than later. My 401k doesn’t kick in until next year. I don’t really want to wait. Should I start an IRA?
Good for you! If you start when you’re 20, you’ll be WAY ahead of most and it’ll be much easier to hit the million dollar mark. If you’re not eligible for your company’s 401(k) plan, channel that money into a Roth IRA instead. Whether in an IRA or a 401(k), your money will be in a tax-advantaged account and that’ll put you further ahead. Best of luck!
I agree with David. Starting an IRA as soon as possible to take advantage the tax deferred savings can definitely help you reach your goal sooner.
@Briana I think that is an awesome goal. I had similar dreams once I left college, but found them difficult to attain given the weight of my student loans.
So if you have any outstanding debt, with interest in the mid-to-high range (> 8%) I would consider reducing this before going into an IRA.
The reason I suggest this is that the ROI on reducing your debt is guaranteed, where as an IRA is not.
Karl
am 16. i live in nigeria’ i don’t av any job because am a student. how will i become a millionaire?