How Long Before Your First Million
A million dollars is still a lot of money. Indeed, it’s enough to get you around four times the median net worth of people of typical retirement age in the United States. Remarkably, despite how impressive that amount is, it’s a target that’s actually within reach of most Americans, as long as they start early enough and invest consistently enough with a reasonable strategy.
Three factors are crucial in your quest to become a millionaire: time, the amount you can save, and the rate of return you earn. Of the three, time is the most important, as with enough of it at your disposal it’s almost trivially easy to wind up a millionaire by retirement. As a result, starting your journey to millionaire status with a perspective of how long it takes to get there can give you great motivation to get started now. Since time is so important, starting now gives you your best chance of making it.
So — just how long does it take?
The following table shows how many years it will take you to reach millionaire status based on how much you can sock away each month and what annualized rate of return you earn. Over the long run, the stock market has delivered returns approaching that 10% annualized rate. While there are no guarantees, history suggests that it may be in the realm of possibility to retire a millionaire simply by investing $100 a month throughout a 45-year career.
|Monthly Savings||Years to $1 Million With 10% Annual Returns||Years to $1 Million With 8% Annual Returns||Years to $1 Million With 6% Annual Returns||Years to $1 Million With 4% Annual Returns||Years to $1 Million With 2% Annual Returns|
DATA SOURCE: AUTHOR.
Of course, as most of us progress through our careers, raises make it possible to sock away a little bit more each payday. That helps us get farther down that table in what we can sock away each month and have a better chance of reaching millionaire status that much sooner.
As for those other monthly savings amounts, they’re largely based on the current annual contribution limits to employer-sponsored retirement plans like 401(k) plans and IRAs. Most people under 50 are permitted to sock away up to $19,000 per year in their 401(k)s and $6,000 in their IRAs. Turning those numbers into a monthly savings amount shows exactly where the larger dollar amounts in that first table came from:
|Monthly Amount||Where It Came From|
|$4,166.66||Married couple, each maxing out a 401(k) and IRA|
|$3,166.66||Married couple, each maxing out a 401(k)|
|$2,083.33||Single person, maxing out a 401(k) and IRA|
|$1,583.33||Single person, Maxing out a 401(k)|
DATA SOURCE: AUTHOR.
The clear trade-off between time and money
The other thing to note about that first table is that it makes a very important trade-off between time and money incredibly clear. The longer your time frame, the more you benefit from the rate of return you’re able to earn on your money along the way. For instance, on the $100-a-month line, there’s almost a century’s difference between how long it takes to reach $1 million, depending on whether you earn 10% or 2% returns. On the $4,166.66 line, the difference is only around six years.
In practical terms, what that means is that the longer your time frame, the more you can take advantage of having your money compound in stocks for you to reach your goal. The shorter your time frame, the more you need to depend on saving a whole bunch of money every month to make it to millionaire status. So get started now, and take as much advantage of the time you have available to let compounding work its magic for you.