Are you looking to build a seven-figure nest egg but don't have time to keep constant tabs on the stock market? You're not alone. The good news is that it's possible to retire a millionaire with just the simplest of no-maintenance investments -- an index mutual fund like Vanguard 500 Index Fund (VFIAX -0.78%) or an exchange-traded fund such as the SPDR S&P 500 ETF Trust (SPY -0.66%), both of which are based on the benchmark S&P 500 Index (^GSPC -0.71%) itself. Here's a closer look at three different retirement savings scenarios that'll get you to a million bucks (or more).

Putting the S&P 500 to the test

Every investor's situation is unique. Most people are in the same basic boat, however. That is, they've got a little seed money to start with, can contribute a little bit to the cause every year, and have at least a few more years' worth of time before retiring. All three of the following hypothetical situations reflect this common reality. 

Let's also keep things simple by assuming that regular investments in an S&P 500-based will be made within a tax-deferring individual retirement account (IRA), and that any dividends paid will be reinvested in more shares of the fund in question. Oh, and we'll just assume the S&P 500 will continue to earn the roughly 10% per year it's earned over the course of the past several decades.

These three people -- each with their distinct scenarios -- will all reach millionaire status even with their modest starts.


Anna is a recent college graduate with a degree in graphic design. She's already got a good-paying job and can come up with an extra $400 per month ($4,800 per year) to contribute to an IRA. Anna also inherited a small IRA from one of her parents that's currently worth about $8000, and intends to work for 30 years before retiring at the age of 55. Assuming she sticks to her plan that whole time, she'll be sitting on just a little over $1.0 million worth of an S&P 500 index fund at the end of her career.

Starting with $8000 and investing an additional $4800 per year in an S&P 500 index fund will be worth $1 million in 30 years.

Data source: Chart by author.


Greg's situation is distinctly different than Anna's. He went into the plumbing trade immediately after high school and within a couple of years started his own plumbing business. He's starting his retirement fund with nothing, having spent all of his life savings to buy a work truck and tools. But, he's easily capable of committing $300 per month ($3,600 per year) toward his retirement fund. He's also planning on working a full 40 years at his job that he loves, which is a long career, but at 20 years old right now he would still be retiring at the relatively young age of 60. Assuming he earns an average of 10% per year over those four decades, Greg's IRA will be worth nearly $1.6 million when he enters his golden years.

Investing $3600 per year in an S&P 500 index fund will be worth $1.6 million in 40 years.

Data source: Chart by author.


Finally, Sharon is a 30-year-old author. Although she's not achieved Stephen King-like notoriety -- or wealth -- she's collecting enough regular royalty income from her self-published novels to comfortably quit her job and write full-time. After paying all of her expenses she can come up with an extra $500 per month ($6,000 per year) to put in her Roth IRA. Better still, her first novel was such a hit that she's able to start her retirement savings journey with $40,000 worth of seed money deposited in a self-employment retirement account. The only catch? Although Sharon loves writing, she also wants to see the world sooner rather than later. Her hope is to fully retire at 55 and then travel. The thing is, if she sticks to the plan she can do just that in 25 years. Her retirement accounts will collectively be worth a little over $1.0 million by then.

Starting with $40,000 and investing $6000 per year in an S&P 500 index fund will be worth $1.0 million in 25 years.

Data source: Chart by author.

You can do the same with your retirement savings

Again, these are only hypothetical examples. They're very familiar examples, though. Most everyone can come up with a few extra hundred bucks per month if they really try. And most people can come up with a few thousand bucks to get going in earnest, even if it means selling a motorcycle you never ride or letting go of a piece of rarely worn jewelry. The key point being made here is that the S&P 500 is an investment that's perfectly capable of turning you into a millionaire.

That being said, there is one other important point worth making. Notice on all three charts above that the vast majority of their net growth takes shape in the last one-third of the savings timeframe. It's a testament to the power of time spent in the market, which is arguably a more important factor than the amount of money you're starting out with or how much you contribute each year.

Oh, one more thing -- while the assumption used in the scenarios above was that the S&P 500 returns 10% per year (which on average it does), bear in mind that's only an average. Some years are worse, and some years are better. Some years it even loses ground! While you can't predict the future, you'll probably not want to retire in the middle of a bear market if your plan is to remain fully invested in the S&P 500 until the day you retire. Be sure to plan accordingly, and update your plan as merited.

Most importantly though, start somewhere -- anywhere -- today, no matter how small that start seems.