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4 Ways to Grow $100,000 Into $1 Million of Retirement Savings

By Catherine Brock – Nov 17, 2021 at 5:46AM

Key Points

  • The long-term growth of the S&P 500 is about 7% annually after inflation.
  • Over the last 30 years, housing prices have grown about 5% annually on average, before inflation.
  • Median earnings for college graduates are about 67% higher than median earnings for high school grads.

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Adding a zero to the end of your $100,000 balance might be easier than you think.

Want to grow $100,000 into $1 million? Although there's only one zero separating those two numbers, the road to a million-dollar savings balance can feel insurmountable.

Fortunately, there's more than one way to turn $100,000 into a seven-digit nest egg for retirement. Here are four strategies that vary in risk and timeline.

1. Invest in the S&P 500

The long-term average annual growth rate of the S&P 500 is about 7% after inflation. At that growth rate, your $100,000 would increase to $1 million in less than 35 years.

Adult couple smiling while looking over paperwork at home.

Image source: Getty Images.

You can easily invest in the S&P 500 index, too. It's as simple as buying an index fund, such as Vanguard S&P 500 ETF (VOO 1.07%), SPDR S&P 500 ETF (SPY 1.10%), or iShares Core S&P 500 ETF (IVV 1.10%).

As you shop S&P 500 index funds, pay attention to the fund's performance relative to the index. The fund will normally lag by a small amount, a difference called tracking error. Tracking error happens because funds have expenses and transactions to manage, while indexes do not.

The fund's expenses, expressed as the expense ratio, are usually the main component of tracking error. That's why it's important to choose funds with a low expense ratio. When less money is siphoned off to cover fund costs, a greater share of the index's performance flows through to you.

2. Buy real estate

Between March 1992 and June 2021, housing prices grew 5.35% annually on average. Take away a couple percentage points for inflation, and the adjusted growth rate is closer to 2.5% or 3%.

That is lower growth than the S&P 500. But with real estate, you can use financing to stretch your starting $100,000. Assuming you go with the standard 20% down payment, your $100,000 could purchase a property worth $500,000. If the property appreciates 2.5% annually on average, it could be worth $1 million in 30 years -- or about the time you've paid off the loan.

This strategy requires you to collect enough in rents to cover the mortgage, taxes, insurance, and maintenance expenses. If your rents don't pay for the expenses, you'd have to invest more than the initial $100,000.

3. Start a business

Another option is to use your $100,000 to start a business. This can be a "hero or zero" strategy -- meaning you might reach $1 million quickly, or you might lose of your money.

The wide range of outcomes and variables makes a business launch a high-risk endeavor. To put that in quantifiable terms, the Bureau of Labor Statistics (BLS) reports that only about 35% of businesses survive 10 years or more.

You can increase your chances of success by finding an experienced entrepreneur who can mentor you. Ideally, your mentor could guide you in researching your business idea, projecting demand and growth potential, and identifying the steps for you to launch successfully.

4. Invest in yourself

You could also invest in your own training and education, with the goal of commanding a higher salary in the future. BLS data supports this strategy. Median earnings for those with a bachelor's degree are about 67% higher than the median earnings for high school graduates. Specifically, the average high school graduate makes $40,612 per year, while the average college grad with a four-year degree earns $67,860.

The difference between those salary levels is more than enough to max out retirement contributions to a 401(k). In 2022, the IRS is capping 401(k) contributions at $20,500. If you saved and invested that amount each year, your 401(k) balance would reach $1 million in about 22 years. That assumes annual growth of 7%, in line with the stock market average.

Becoming a millionaire retiree

If you've already saved $100,000 for retirement, congratulations -- you've reached the first big milestone on the road to $1 million. Your next step is to invest your $100,000, either in yourself or in an appreciating asset.

The more time you allow to implement a growth plan, the more predictable your results will be. That's a good reason to kick off your $1 million plan now. That gives you the best shot of reaching millionaire status by the time you retire.

Catherine Brock owns shares of Vanguard S&P 500 ETF. The Motley Fool owns shares of and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

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