Like all but conquer a millionaire retirement | Smart Change: Personal Finance

(Chuck Saletta)

Despite the rampant inflation we all hear today, $ 1 million is still a lot of money. In fact, that’s nearly four times the average household net worth of people around retirement age. Consequently, even today, a $ 1 million nest egg, when combined with social security and health care, should be enough for a reasonably comfortable retirement in most parts of the country.

This makes a $ 1 million nest egg a great goal to aim for. Of course, since it’s far ahead of where the median family is, it’s obviously easier said than done. There are no guarantees when it comes to investing, but there is a simple three-step approach that can help you all but win your millionaire retirement.

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Step 1: Get started early

The earlier you start building your retirement nest egg, the easier it will be to hit that $ 1 million balance. This is because compounding tends to have a broader base to work on the longer you let it work its magic. The chart below shows a single investment’s potential growth of $ 10,000 over time, based on the rate of return you earn and the number of years you let it rise.

Years of aggravation

Annual returns of 10%.

8% annual returns

6% annual returns

4% annual return

45

$ 728,904.84

$ 319,204.49

$ 137,646.11

$ 58,411.76

40

$ 452,592.56

$ 217,245.21

$ 102,857.18

$ 48,010.21

30

$ 174,494.02

$ 100,626.57

$ 57,434.91

$ 32,433.98

20

$ 67,275.00

$ 46,609.57

$ 32,071.35

$ 21,911.23

10

$ 25,937.42

$ 21,589.25

$ 17,908.48

$ 14,802.44

5

$ 16,105.10

$ 14,693.28

$ 13,382.26

$ 12,166.53

That money up front can really make a difference to your net worth when you retire. Just look at that top line that shows how much bigger your single investment can grow if you throw it away and leave it alone for almost your entire career.

Step 2: Invest consistently

Of course, if you’re well past the point where you have more than four decades to wait until retirement, the chance to put that super-early money into work may be behind you. The good news on this front is that you may still have a decent chance of earning that millionaire retirement by investing consistently.

By making regular investments every payday, each investment has the opportunity to increase between the time you make it and the time it takes to take advantage of it for retirement. The chart below shows how much you need to invest each month reach $ 1 million by retirement, based on the number of years you have to invest and the rate of return you earn.

Years to go

Annual returns of 10%.

8% annual returns

6% annual returns

4% annual return

45

$ 95.40

$ 189.59

$ 362.85

$ 662.48

40

$ 158.13

$ 286.45

$ 502.14

$ 846.05

30

$ 442.38

$ 670.98

$ 995.51

$ 1,440.82

20

$ 1,316.88

$ 1,697.73

$ 2,164.31

$ 2,726.47

10

$ 4,881.74

$ 5,466.09

$ 6,102.05

$ 6,791.18

5

$ 12,913.71

$ 13,609.73

$ 14,332.80

$ 15,083.19

While there’s still a huge benefit to starting early, the good news is that mid-career professionals still have a decent chance of earning that millionaire retirement. Keep in mind, though, that time can quickly start working against you.

See how much you need to throw away each month if you start saving with ten or fewer years left before retiring. If you thought you could tear some of it apart hundred a month at the beginning of your career was tough, try going from $ 0 to a few one thousand later in your career. So while investing consistently is key, starting as early as possible makes it much more likely that you will reach your goal.

Step 3: Buy long-term stocks

While the first half of 2022 reminded us that stocks can go up or down over the long run, there is still good reason to believe that stocks can be a great wealth creation tool. That 10% yield column on the left side of both tables is there for a reason. This is roughly in line with the long-term historical overall returns of the stock market. Equity returns are never guaranteed, but it’s certainly nice to know that these numbers are all in line with what history suggests is in the realm of the possible.

Regardless of what the future of the market holds, a great approach to buying stocks is to buy a low-cost, broad-based index fund. These types of investments are widely available in intermediaries and many employer sponsored 401 (k) type plans. They offer market-like returns with almost no overhead costs, and most importantly, they tend to outperform more actively managed mutual funds over time.

This means that one of the simplest ways to buy stocks is also one of the best. Over time, consistently investing in broad market index funds gives you a great chance for all but winning that millionaire retirement.

It starts now

When it comes to saving for retirement, whatever your personal goal is, the sooner you start, the more time you have on your side. So make today the right day to put your plan into action and increase your chance of hitting that million dollar nest egg before your retirement.

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Chuck Saletta has no position in any of the titles mentioned. The Motley Fool has no position in any of the titles mentioned. The Motley Fool has a disclosure policy.

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