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One million dollars may not be worth as much as it once was, but it's still enough for most folks to fund a comfortable retirement. Perhaps even better, a million dollar retirement represents a target that might very well be within your reach.

The most important things you can do to improve your chances of reaching millionaire status by retirement include:

  • Start saving and investing as soon as you can,
  • Invest a decent amount consistently throughout your career,
  • Target a reasonable rate of return, and
  • Take advantage of any "free money" you can get your hands on.

Whether or not you're able to reach millionaire status depends largely on how well you take advantage of each of these things.

Why starting early matters

The earlier you start investing for your future, the more time you give your money to work on your behalf. With enough time on your side, that compounding can be quite spectacular. Over time, the stock market has delivered total annualized returns around 10%. The table below shows how much a single $1,000 investment could be worth, depending on how long it can compound at that 10% rate:

Number of Years

Value at End













Table by the author. 

Notice how a $1,000 investment socked away as a new hire winds up being worth more than ten times as much as a similar $1,000 investment made as a mid-career professional. Although there are no guarantees of future performance in stocks, if the longer-term future winds up anything like the past, similar results might be possible. Yet to take advantage of that compounding, you must start early.

Why consistently investing matters

As powerful a wealth building force as compounding can be, in reality, most people don't earn enough early in their careers to rely only on compounding early investments to reach that $1 million target. For instance, you'd have to sock away over $22,000 early enough in your career to give it 40 years of compounding at that 10% rate for that single investment alone to reach your goal. While that might be possible for a few dedicated early savers, for the rest of us, saving that much that quickly is a challenge.

In addition, while the market's long run annualized return has been in the neighborhood of 10%, those returns have been lumpy, with several years delivering horrendously negative returns. If you're relying on a single investment to catapult you to millionaire status, a bad year in the market at an inopportune time can easily derail your plans.

Invest consistently, however, and you'll benefit from dollar-cost averaging. With dollar-cost averaging, sometimes you'll buy high, and other times you'll buy low, but over time, you'll likely wind up buying around average prices and getting overall returns near the market's average.

Why a reasonable rate of return matters

As an investor, the amount you'll wind up with depends heavily on how quickly they money you have invested can compound. The rate of return you earn depends on what type of assets you buy and how well they perform. While there are no guarantees in the market, one general trade-off that typically holds true is that the higher the certainty of a potential return, the lower that return will be.

Said differently, a savings account is a great way to get a government guarantee you'll get your money back, but the current average interest rate on a savings account is an appalling 0.11%. While stocks might continue their long term trends of returning near 10% annualized, there's no guarantee they'll do so.

The long run rate of return you target for your investments should be somewhere between what you could get in stocks and what you could get in a savings account. Within that range, consider:

  • How much volatility you're willing to accept. The more volatility you're OK putting up with, the more stock exposure you can take.
  • How long until you need to tap your money. Money you need to spend within the next five or so years does not belong in the stock market. Your retirement may last long enough that you'll need long term investments for decades to come. Still, if your retirement date is coming up soon, you'll want enough money in less volatile investments like short term bonds or cash to cover your nearer term spending needs.
  • Whether you believe stocks will perform as well in the future as they have in the past. As the saying goes, "past performance is no guarantee of future results," and even Warren Buffett thinks overall stock returns might be headed to future long-term rates around 7% or so.

Your projected rate of return matters because it plays a key role in determining how much you'll need to save each month in order to wind up with $1 million at retirement.

Why "free money" matters

The table below showcases how much needs to be socked away on your behalf every month to reach $1 million at retirement, depending on the rate of return you earn and the number of years you have until that date. As you can see, the numbers can get quite large, particularly if you're mid-career or later and haven't yet started investing.

Number of Years

10% Annual Returns

8% Annual Returns

6% Annual Returns

4% Annual Returns































Table by the author. 

In part because those numbers can get so large, any help you can get in reaching that goal simplifies the task for you. On that front, both Uncle Sam and your boss may be willing to chip in to help. Your boss might be willing to offer a match on some or all of your contribution to your company sponsored retirement plan, which reduces your out of pocket burden.

Uncle Sam offers qualified retirement accounts -- such as 401(k) and IRA plans -- that offer tax-deferred compounding and the potential for either tax-free withdrawals or tax-deductible contributions. Those tax benefits help you reach your goal more efficiently.

When combined, Uncle Sam's benefits and your boss's may allow you to effectively double the amount you sock away for your future, cutting the out-of-pocket burden in half.

Get started now

No matter where you are along your career, the sooner you get started, the better your chances are of reaching that $1 million goal. The powers of compounding, of a smaller monthly contribution, and of a better chance of getting close to the market's long run returns work better on your behalf the more time you give them to work. So get started now and give yourself the best possible chance you can of achieving a million dollar retirement of your own.