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A million dollars, it is still a lot of money. In fact, you just need to do about four times the median net worth of people with typical retirement age in the United States. Remarkably, despite the impression of this amount, it is a target within the reach of most Americans, provided they start early enough and invest enough with a reasonable strategy.
To become a millionaire, three factors are essential: the time, the amount you can save and the rate of return you earn. The most important is the time, because with enough means at your disposal, it is almost very easy to liquidate a millionaire in retirement. As a result, starting your journey towards Millionaire status with a perspective of the time needed to get there can give you a great motivation to start now. Since time is so important, starting now gives you the best chance of success.
Image Source: Getty Images
So, how long does it take?
The table below shows the number of years you will need to reach the Millionaire status based on the amount you can accumulate each month and the annualized rate of return you earn. In the long term, the stock market generated returns close to this annualized rate of 10%. While there is no guarantee, the story suggests that it might be possible to retire from a millionaire by simply investing $ 100 a month throughout a 45-year career.
|
Monthly savings |
Years at $ 1 million with 10% annual returns |
Years at $ 1 million with 8% annual returns |
Years at $ 1 million with 6% annual returns |
Years at $ 1 million with 4% annual returns |
Years at $ 1 million with 2% annual returns |
|---|---|---|---|---|---|
|
$ 100.00 |
44.5 |
52.9 |
65.7 |
88.6 |
143.7 |
|
$ 300.00 |
33.7 |
39.4 |
48.0 |
62.5 |
94.1 |
|
$ 500.00 |
28.8 |
33.4 |
40.1 |
51.0 |
73.4 |
|
$ 1,000.00 |
22.4 |
25.5 |
29.9 |
36.7 |
49.1 |
|
$ 1,583.33 |
18.4 |
20.7 |
23.8 |
28.4 |
36.0 |
|
$ 2,083.33 |
16.2 |
18.0 |
20.4 |
23.9 |
29.4 |
|
$ 3,166.66 |
13.0 |
14.2 |
15.8 |
18.0 |
21.2 |
|
$ 4,166.66 |
11.0 |
12.0 |
13.2 |
14.7 |
16.8 |
Data source: author.
Of course, as most of us progress in our careers, the increases allow us to earn a little more each payday. This helps us get closer to what we can save each month and increase our chances of reaching the millionaire status much sooner.
Other monthly savings amounts are largely based on the current annual contribution limits of employer-sponsored pension plans, such as 401 (k) plans and IRAs. Most people under the age of 50 are allowed to save up to $ 19,000 a year in their 401 (k) s and $ 6,000 in their IRAs. By converting these numbers into a monthly savings amount, you see exactly where the dollar amount of this first table comes from:
|
Monthly amount |
From where it comes from |
|---|---|
|
$ 4,166.66 |
Married couple, each up to a maximum of 401 (k) and IRA |
|
$ 3,166.66 |
Married couple, each up to a maximum of 401 (k) |
|
$ 2,083.33 |
Single person, maximum 401 (k) and IRA |
|
$ 1,583.33 |
Single person, Maxing out at 401 (k) |
Data source: author.
The obvious compromise between time and money
Source of the image: Getty Images.
The other thing to note about this first chart is that it makes a very important trade-off between time and money. The longer your period of time, the more you get the rate of return you can get on your money along the way. For example, on the $ 100 a month line, there is almost a century difference between the time needed to reach $ 1 million, depending on whether you earned 10% or 2%. On the line of $ 4,166.66, the difference is only about six years.
In concrete terms, this means that the longer your period, the more you can leverage your money mix into shares to help you reach your goal. The shorter your turnaround time, the more you must rely on considerable savings each month to reach the millionaire status. So start now and make the most of the time you have to let the composition compose its magic.
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