This post will walk through the ridiculously simple math behind becoming a millionaire. Let me start off by saying that a million dollars isn’t what it used to be (sorry no yachts or private jets). However, having a million dollars is the bank still puts you in elite status when it comes to retirement savings.
The median retirement age American (65-74), has $126,000 saved for retirement. The average retirement age American is doing better, but they still only have $358,000 saved. So having a million dollars in the bank would give you 8x the amount the median has saved and almost 3x the amount the average has saved.
From a cash flow standpoint, a million dollars can generate $40,000 per year using the 4% rule. When added to the average social security income of $17,000 per year, you get to $57,000 which covers the average income in the US. This may not afford a life of luxury, but in most cases it will provide a secure retirement.
Now for the numbers themselves…
The chart above shows the monthly savings needed to reach a million dollars over various time frames. These numbers assume the money is invested in an asset that has a relatively conservative return on investment of 7% annually.
The chart illustrates that Time really is your best friend when it comes to retirement savings. Many will say that even $814/month is an impossible amount of money to save each month. However, no one said becoming a millionaire would be easy. For an average W2 employee, this may mean a savings rate of 15-25% with an employer 401k match. This is a significant savings rate, but if this is an important goal sacrifices will need to be made along the way. As the great coach Vince Lombardi said, “The difference between a successful person and others in not lack of strength not a lack of knowledge but rather a lack of will”.