The steps to follow in order to become a millionaire are simple. Save money, regularly, over time. However, there would be many more people reaching this wealth-building milestone if it were easy. While the net worth of many hard-working Americans skyrocketed during the last decade, nearly half of all families have nothing saved for retirement. Keep reading to learn the basic math and what it will take for you to retire as a millionaire.
Some of you should be dreaming bigger and planning to retire as multi-millionaires. If you are starting from scratch at age 50, you are behind. However, you can still make this financial milestone happen. Keep reading to find out how.
Are Most Americans On Track to Retire as Millionaires?
As I mentioned earlier, nearly half of all families have zero retirement savings. Want to be above average? All you need to do is save any dollar amount for retirement. Every day I help people, who often will have multi-million-dollar retirements, plan for financial freedom. It isn’t easy but it also doesn’t have to be hard. Without getting started, you will likely never become a millionaire on your own.
However, it’s still completely possible to become a millionaire by the time you retire even if you don’t start until you’re 50. Whatever your age, get started! The sooner you start, the easier it will be. Here’s what you’ll need to save in order to become a millionaire. If you are younger than 50 and reading this, don’t take this positive tone as an excuse to delay getting started.
What a 50-Year-Old Must Do to Retire as a Millionaire
You may think that becoming a millionaire is impossible. The following will break down exactly what to do and how much to save each day, each month, and each year to have $1 million by the time you reach retirement. Keep in mind, you may need to push back retirement until the age of 70 (or later). The assumption is that you are just getting started but if you have some money saved, you are going to have an easier time hitting that big milestone.
Becoming a millionaire, or even multi-millionaire, boils down to three things: time, compounding interest and savings. How fast your money grows will also influence how fast you become a millionaire.
A four-percent annual return (the approximate average that investors earn doing it themselves):
- $92 per day
- $2,798 per month
- $33,581 per year
Savings Rate Need to Become a Millionaire (assuming a six-percent annual return)
- $75 per day
- $2,265 per month
- $27,184 per year
Savings Rate Need to Become a Millionaire (assuming an eight-percent annual return, which is still well below the average return of various stock market indexes over time):
- $60 per day
- $1,821 per month
- $21,852 per year
Savings Rate Need to Become a Millionaire (assuming a 10% annual return)
- $48 per day
- $1,455 per month
- $17,460 per year
Many of you could save those amounts without thinking about it. Others may need to set them as savings goals and work up to saving those amounts over time. Don’t freak out. It’s important to realize that those saving numbers can include things like an employer match or profit sharing.
You are also likely to receive tax breaks for contributing to a retirement account, such as a 401(k), IRA or 403(b). If that is the case for you, it means only 50-70% of the above numbers would be coming out of your pocket. Contributions will be pre-tax. Also, the more you make, the more beneficial the tax deductions will be. Since we are talking about starting at 50, you will be able to make catch-up contributions -putting away more money pre-tax. Individuals, who are at least 50 years old, will be able to contribute an additional $6,500 to their companies’ 401(k) in 2020.
Is Becoming A Millionaire Really Possible?
As a financial planner for the last 16 years, I’ve seen it all as I have worked to help guide people towards financial security. I’ve met with people, earning millions of dollars, per year, who were drowning in debt. Conversely, I’ve encountered others making around $50,000, who made saving a priority and had an impressive net worth to show for it. If you never get started or save anything, you will never build a million-dollar net worth. As a general rule, strive to save 10-20% of your income. Start where you can and work up to that.