How to turn $10,000 into more than $1,000,000 when you retire

Becoming a millionaire is a goal for many, but actually achieving a seven figure net worth is another game entirely. The good news is that it is definitely possible to achieve the feat with the help of a few simple behaviors throughout your working career.

Here, we’ll review how you can turn $10,000 into $1,000,000 even before it’s time to collect your first Social Security payment.

Work on financial math

First, let’s say you’re 25 and planning to work in a formal career until you’re 65, and you’ve saved $10,000 by working side jobs during your teens. Assuming broad markets perform similarly to how they have for the past century, she expects a 10% return on all money invested. Finally, he simply uses index funds in his 401(k) and other investment accounts, and generally stays away from picking individual stocks.

If your ultimate goal is to retire at age 65 with a total investment portfolio of $1,000,000, you would need to invest just $73 per month to achieve it. If this sounds impossible, it’s understandable: this is a bit harder to understand without a working knowledge of compounding returns. But the fact is that staying consistent with your investing behavior, regardless of what is currently happening in the market, can yield outsized results for your net worth in the long run.

A person discussing financial matters with two other people.

Image source: Getty Images.

How to change the result

If you’re thinking that constantly saving isn’t realistic or that you don’t find working until age 65 attractive, there are a few options when it comes to changing the math. Options include:

  • Increase the amount of your investment. If you were more aggressive in your saving behavior and increased your monthly investment to $250, you would hit the million dollar mark almost eight years sooner. This translates to a working career of just over 32 years, as opposed to the full 40.
  • Work longer. If you don’t care as much about your job, you could make the decision to work for 45 years even longer, but only commit to investing $11 per month. This may make a lot of sense, but it requires you to start early, never stop investing, and experience the market returns that do most of the heavy lifting.
  • Retire with less. If you are sure you can live on $800,000 instead of $1,000,000, you could invest just $41 per month over a 40-year period. Alternatively, you could invest $73 per month for 37 years instead of 40 and pay it off three years early.

Some important asterisks

These calculations assume that the markets will average their same 10% average annual return over the next 50 years. The reality is that there is no guarantee this will happen, but it makes sense to stick with index funds for their diversification benefits. Thus, if the market it does As you have in the past, you will be able to take full advantage of strong stock performance when it manifests itself in reality.

The calculations above also assume that you will be able to work steadily for 40 years (or more). While we can all expect this to be the case, especially if you have a vocation you enjoy, there’s no guarantee this will happen either. The possibility of experiencing some event that prevents you from working consistently for 40 years is higher than most people will readily recognize.

Finally, in the example above, it is important to note that most of the interest earned occurs at the end of this hypothetical individual’s career. This is the very essence of compound interest: as balances accumulate, the interest for the next period will be higher than the interest for the previous period. As such, it is essential to start early and invest as much as you can as soon as possible.

Take control of your money today

Instead of trying to predict what will happen next, focus on behaviors that you can control. Leave enough slack in your monthly budget to make regular, consistent index fund investments, and let time do the rest of the work. To the extent that you can increase your savings rate beyond widely recommended levels, do so. In the future, you’ll be excited when they open your retirement account statement.

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