How Anyone Can Become a Millionaire Without Getting Lucky
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Building wealth isn’t a magic trick, it’s just a matter of being consistent for a long time.
Congratulations! You’ve just won the lottery! You can kick back and relax. You’re on easy street. You’ve made it, you’re a millionaire…
Wait, wait, wait. Hold up.
That’s not happening and you know it. You’re more likely to get hit by lightning than you are to win the lottery.
You’ve got no chance of becoming a millionaire…that is, no chance short of working hard, investing well, and being strategic in your approach to your money and your personal finances.
There are roughly 1,700 new millionaires minted every year, and the number of millionaire households in the United States is expected to rise past 11 million by 2020.
This figure doesn’t include owned residences, which are the primary ways most households create wealth for themselves. There are 126 million households in the U.S., which means there’s a roughly 9% chance of being a millionaire in America — at least if you get there by 2020.
You can still become a millionaire further down the line. In fact, your odds of reaching the two-comma club are better the younger you are. That’s because you simply have more time to take advantage of compound interest, a wealth-building mechanism so effective that Albert Einstein purportedly called it “the most powerful force in the universe.” He probably never said that, but someone did, and it’s true, so who cares if they made the statement stick around by attributing it to a genius with funny hair?
Starting early gives you a huge amount of flexibility in terms of what you need to save to get to millionaire status. An 18 year-old who puts just $100 a month into investments that grow by an average of 9% each year will reach a million dollars in savings at age 66.
That rate of return is lower than the average annual rate of return from 1926 to 1956, from 1956 to 1986, or from 1986 to 2016, according to data compiled by investment manager Ben Carlson. Over the long run, the S&P 500 produces some very solid results, and index fund investing is about as low-impact and low-effort as you can get.
Here’s where it gets scary. The longer you wait to start saving, the harder it gets to make it to the million mark:
- A 25 year-old who wants to retire a millionaire can do so at age 67 if they put $175 a month into an S&P 500 index fund.
- A 30 year-old can retire with seven figures in their investment account at age 65 if they sock away $325 every month.
- A 40 year-old will have a harder time playing catch-up, but even if they don’t have any savings at all, they can make it to age 70 with a million-dollar retirement portfolio if they consistently invest $515 every month.
- The outer edge of feasibility starts to hit around age 50, when you’ll need to start saving $1,425 every month to retire a millionaire at age 70. If you’re willing to work another five years, you can go from age 50 to age 75 and reach millionaire status at retirement by saving $850 every month.
You can check these numbers for yourself with NerdWallet’s retirement calculator widget, and play with some assumptions on your own to see just how feasible your seven-figure dreams are at any age. NerdWallet assumes that inflation will run at about 3% per year, and it also makes several other assumptions to help guide you towards an ideal savings rate to ensure a comfortable retirement.
In all cases, I started with the assumption that a person at the given age would be approaching their millionaire project with no existing savings. Most 18 year-olds would be in this position unless they’d been fantastically entrepreneurial, or received a good chunk of money from parents and relatives, before graduating from high school.
However, most people who’ve made progress in their careers will have saved something. The Balance has a breakdown of average retirement savings by age that we can plug into our calculator to see how much the typical American saver would need to put into an index fund each year to retire with a million dollars:
- The median retirement savings for millennials (25-30) is $31,000.
- The median retirement savings for 38-43 year-olds is $67,270.
- The median retirement savings for 50-55 year olds is $124,831.
Under these new assumptions, a 25 year-old with $31,000 saved for retirement can retire a millionaire as early as age 60 if they invest $120 per month in an index fund. If a 25 year-old with savings keeps working to age 65, they can easily clear the millionaire hurdle and then some with $75 in monthly investment — adding this to the $31,000 they already had will leave them with $1.35 million at age 65.
A 30 year-old with $31,000 saved can reach age 65 as a millionaire if they put away $125 every month. It’ll require a bit more saving to retire as a millionaire at age 60 — $325 a month, on top of your $31,000 savings, will help you get there.
A 40 year-old starting with a $67,270 nest egg would need to save $350 a month to retire with a million dollars at age 65. Working five more years before retirement cuts the required savings significantly. It would only take investing $55 a month into your retirement account from age 40 to age 70 to end up as a millionaire. You could manage that just by cutting out about 10 lattes at Starbucks every month. Easy!
A 50 year-old with $124,831 in their retirement accounts would need to save the following amounts to retire as a millionaire at various ages:
- $1,400 a month to retire a millionaire at 65
- $425 a month to retire a millionaire at 70
- Nothing to retire a millionaire at 75!
That last bullet point isn’t a typo. The growth of an initial $124,831 nest egg for 25 years would (at least according to NerdWallet) result in a million-dollar portfolio, if the average return on your index fund is roughly 9% per year.
Becoming a millionaire is possible, even if you do nothing more than invest in the simplest ETFs and index funds available. Reaching seven figures isn’t an art or a magic trick. It simply involves consistency, commitment, and time.
The sooner you start, the easier it becomes.