It's not just a game show, but a reality for some Americans! Ok lets slow down here...lets face it...you probably won't have the annual salary of a Millionaire. However, what you can do is save a Million dollars for RETIREMENT! Retiring with a Million dollars combined in your various retirement accounts (401K, HSA or IRA, etc...) is actually a reasonable and achievable goal! There are a few keys to making this successful for you.
The Power of Compounding!
Here's how you do it: START EARLY! The earlier you start saving for retirement, the more years you have for your savings to compound over time. The chart below shows the potential future value of an account which is contributed to consistently for 30 years. The first row represents the Investment Contribution per Year. The first column represents the average growth rate of the account. Using the chart below, an individual who maxes out their 401K ($18K per year) would only need an average annualized gain of 4% to become a millionaire at retirement!
However someone contributing $6K per year, a third of the 401K max or $500 more than the IRA max, would need an average gain of 11% per year to crack millionaire status. If you're self-employed, you can contribute even more with an SEP IRA. Up to $58,000 per year or 25% of your income, whichever is less. Think averaging 11% a year for 30 years is unreasonable??? Think again!
Over the past 30 years, the compound annual growth rate, also known as annualized gain, of the S&P 500 was just over 11%. Since the inception of the S&P 500, the annualized gain has been approximately 10%. So by investing between $6,000 and $8,000 each year between your retirement accounts and/or individual investment accounts, you can surely become a millionaire by retirement! Not sure where to put those retirement dollars? The Share Repurchase Newsletter provides an easy to follow investment strategy which has gained over 10% per year (more when including dividends) since it started tracking Share Repurchases in 2010. Subscribe now to keep up with our easy to follow investment strategy!
Now these numbers do not take into account any fees you may incur from your mutual fund provider, or broker if mainly investing with individual stocks. So it's best to choose a discount broker for your individual trades, and select mutual funds with the lowest fees in your 401K to help minimize the cost of investing.
Of course the earlier you start, the more likely you are to become a millionaire, or reach whatever goals you have set for retirement. Starting earlier means you will need to contribute less money per year in order to reach the million dollar mark. So if you're an individual who starts working at the age of 18, and continues working up to the age of 65, that's 47 years of potential contributions. Later start? You may need to contribute more, or gain more than the historical 10% yearly average over this shorter time period. But the later you start, the more you need to contribute, and the more your average gain will need to be in order to reach a Million dollars if that's your goal.
What is your goal? How early did you start? Have kids under the age of 18 that are already on their way to being a Millionaire at retirement? At what age do you plan to retire? Feel free to share in the comments below! Subscribe to our Blog to receive email updates when new posts are released! Thanks for reading and sharing!
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Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!