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

The average Social Security benefit recently amounted to just about $22,000 over the course of a year (as of February, 2023). That's clearly not a lot to live off of in your later years -- so be sure you're saving and investing for retirement throughout your working life.

How much do you need for retirement? Well, that number is different for different people, depending in part on your location, your activities, your health, and more. For many people, $1 million will be enough -- especially when complemented by Social Security, and perhaps another income stream or two. Here are some ways to get to $1 million, assuming that you already have $100,000 saved. (And they can help you build wealth even if you haven't.)

Image source: Getty Images.

1. Be patient

For starters, you'll need to be patient. Yes, a lottery ticket can make you rich in just a week or less, but a more reliable road to riches is via long-term savings and investments. Interest rates have risen in recent years, and you can now collect as much as 5% in interest in some savings accounts. Here's how your $100,000 could grow at that rate over time (though rates may well decline during this period):

Source: Calculations by author.

You can clearly get to a million dollars (or more!) with this approach, but you may want to get there in less than 50 years. That's very possible -- if you invest additional sums over time and/or your money grows at a faster rate.

2. Be aggressive

For a faster rate, consider one or more simple, low-fee index funds, which can get you returns roughly matching those of the overall stock market or some other broad market measure. (The long-term average stock market return is close to 10%, by the way, though you might average a bit more or less over your particular investing period.)

Here's how much you might amass if you plunk your $100,000 (and only that) into an index fund that averages 8% annual growth:

Source: Calculations by author.

You can do even better than that by adding money to your account every year (assuming it averages 8% annual growth):

Source: Calculations by author. 

Now you're reaching $1 million in perhaps 21 years. You can get there even faster by adding more each year or by aiming for a faster growth rate. Building a portfolio of growth stocks can achieve that, but there's no guarantee -- many growth stocks sport sky-high growth rates for a decade or more, but many others never flourish.

A key lesson here is to start soon. Your earliest invested dollars are your most powerful ones, as they have the most time to grow for you.

3. Avoid costly errors

You'll get to your $1 million most efficiently if you avoid costly blunders. These include falling for penny-stock pitches ("this company is about to strike gold!" "This stock is on its way to quintupling by next year!"), investing "on margin" (i.e. with borrowed money), day trading, and dabbling in things you don't really understand.

Another common mistake is withdrawing money from retirement accounts early. It may be tempting if, for example, you're changing jobs and only have $25,000 in a 401(k) account. But leave it in place (or roll it over to an IRA) and it might grow to more than $100,000 in 20 years.

4. Be tax-smart

Finally, be tax-smart. Think through the tax implications of various investing moves. For example, you might favor Roth IRAs, because if you follow the rules, you'll be able to withdraw money from them in retirement tax-free. Imagine building a Roth account worth $500,000 by retirement and being able to tap all that money without paying Uncle Sam!

You might also aim to have your faster-growing investments in your Roth IRA, and perhaps your dividend-paying investments, too, so that those dividends will never be taxed. With your gains that will be taxed, long-term capital gains tax rates tend to be lower than short-term ones, so aim to hold your stocks for at least a year and a day before selling -- if that makes investment sense. (But don't base decisions solely on tax concerns.)

If you have a decade or two before you hit retirement, you may be able to amass much more than you ever thought you could -- and you'll be so glad that you did.