President Joe Biden has proposed increasing the federal minimum wage from its current $7.25 per hour to a new total of $15 per hour.
Based on 2019 estimates from the Bureau of Labor Statistics, close to 400,000 workers are paid the federal minimum wage. A bump up to $15 per hour would more than double what they're earning. But would it be enough to potentially enable minimum wage earners to become millionaires over time?
Could you save $1 million on a $15 minimum wage?
First, it's worth looking at whether it would be possible to become a millionaire while earning the current federal minimum wage.
A wage of $7.25 per hour while working 40 hours per week, 52 weeks per year, would result in an annual salary of $15,080. Assuming people earning at this level could invest 10% of their income annually (a big assumption and probably an unrealistic one), it would take just over 50 years to grow a $1 million nest egg with an 8% annual rate of return.
Obviously, it's unrealistic to expect this to happen for a number of reasons, including the fact that most minimum wage workers aren't able to devote 10% of earnings to investments since it's difficult to make ends meet on minimum wage.
But what if that minimum wage goes up to $15 per hour? Full-time minimum wage workers would see their annual salary rise to $31,200. Investing 10% of that amount each year would push the timeline for millionaire status down to 41.25 years -- still quite a long time. But if you start investing in your late 20s, you could amass $1 million by your mid-60s when it's time to retire -- even if you earned this same minimum wage your entire career.
It's also worth noting that many lawmakers want to index the minimum wage to inflation. If that occurred, it wouldn't just stay stagnant for decades (the current federal minimum wage hasn't increased since 2009). If workers whose wages are bumped up to the minimum now see regular pay increases (even if they stick with their minimum wage jobs), savings could increase as their salary does. This could bring the timeline for saving $1 million down to a more reasonable 35 years or so. Even those who wait until their 30s to start saving could become millionaires by their customary retirement age.
Of course, there's also another option. A worker making $7.25 per hour now whose wages rise to $15 per hour doesn't have to increase spending by the full amount of the extra money. After all, when you're used to a budget based on $15,080 in annual earnings, you'd have a whole lot more money when your income goes up to $31,200. If you keep half the extra to improve your current circumstances and save the other half, you could invest $8,060 per year. At that rate, you'd reach millionaire status in just 30 years.
None of these calculations factor in the tax benefits of investing for retirement -- including the Saver's Credit, which minimum wage workers would likely qualify for. Nor do they include any employer match that might be available for workers with a 401(k). But they do show that, whatever the merits or detriments associated with increasing the minimum wage, bumping it from $7.25 to $15 per hour would make it at least a little more feasible for the country's lowest-paid workers to amass a seven-figure nest egg.