Be a Middle-Aged Millionaire

The idea of being a middle-aged millionaire should seem pretty attractive -- and perhaps extremely unlikely. Well, I confess that for some people, it will just never happen. Those people are around 65 or older, though, because when I looked up the definition of "middle-aged," it ranged from roughly 45 to 65. So if you're 65 and not a millionaire yet, I don't think it's going to happen for you before the end of the year.

But if you're younger than 65, there is hope! And the younger you are, the more hope there is. Let's crunch a few numbers, shall we? Here are a few scenarios:

• If you're 50 and have $500,000 invested, you'll need to earn an average annual rate of return of 7% in order to hit $1 million by age 60.
• If you're 50 and have $200,000 invested, you'll need to earn an average annual rate of return of 17% in order to hit $1 million by age 60.
• If you're 50 and have $50,000 invested, you'll need to earn an average annual rate of return of 35% in order to hit $1 million by age 60.
• If you're 40 and have $250,000 invested, you'll need to earn an average annual rate of return of 7% in order to hit $1 million by age 60.
• If you're 40 and have $100,000 invested, you'll need to earn an average annual rate of return of 12% in order to hit $1 million by age 60.
• If you're 40 and have $25,000 invested, you'll need to earn an average annual rate of return of 20% in order to hit $1 million by age 60.

The bad news
As promising as some of the scenarios above might seem, here's a little detail to swallow: $1 million might not be enough for you to retire on. In our Rule Your Retirement newsletter, I learned that in order to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement, to live on. So 4% of $1,000,000 is about $40,000, or roughly $3,333 per month. Will that be enough? For some, the answer is no.

The good news
Fortunately, there's plenty of good news. For one thing, who's to stop you from accumulating $2 million? Do so, and a 4% withdrawal will yield $6,666 per month. Doubling your goal is easier said than done, of course, but remember that my examples above are based on a single lump-sum investment made at the beginning of the investment period. It's more likely that as you continue to work, you'll be able to continually plow more money into your growing nest egg.

If you start, at age 40, with $50,000, and you add $10,000 per year for 20 years, earning an annual average of 10%, you'll end up with $1 million. Earn an annual average of 14%, and you'll hit $2 million by age 62. See? It can be done.

There's one major factor left to consider, though: how you'll earn that 10% or 13% -- dare we aim for it? -- 20% average annual gain.

One way I used to go about finding stocks in which to invest was to simply screen for them. For example, I might look for companies in the S&P 500 with net profit margins of 10% or more and expected average annual earnings growth of at least 15% over the next five years. When I ran this screen recently, here are some of the companies that popped out:

Of course, this still isn't the soundest method of picking stocks, unless it's followed up by a lot of research. The screen, after all, just looks at a small number of factors, some of which are based purely on past performance, and others of which are simply human estimates. It would help to add your informed insights to the mix, such as how you think Carnival cruises will do in the coming years, given your assessed risk of terrorism messing with the tourist industry.

One other way to find promising companies -- and to leave much of the research work to others -- is to take advantage of our investing newsletters. Our Motley Fool Inside Value newsletter, for example, is beating the market by a full 6 percentage points. Try it for free for a whole month, with no obligation, and you'll be able to access all past issues, including the list of all recommended stocks and how well they've done. (More than a dozen are up more than 40% in not much more than two years, and some have more than doubled in that span.)

Here's to a middle-aged life as a millionaire!

Selena Maranjian owns shares of Linear Technology. For more about Selena, view her bio and her profile. Nvidia and Charles Schwab are Motley Fool Stock Advisor selections. The Motley Fool isFools writing for Fools.