If you already have $100,000 saved for retirement, you may be closer to reaching $1 million than you realize.
Saving and investing to get to $100,000 is like pushing a snowball to the top of a hill. It can be really hard sometimes, and the snowball still seems kind of small. But once you reach the top of the hill, you can let the snowball roll down the other side and let it get bigger and bigger. You just have to make sure your snowball stays on course and doesn't crash into a tree.
You can help the snowball along by continuing to run after it and pushing it, but it would keep growing even if you left it alone for the most part. That's exactly how compounding works when you invest your money in the stock market.
Here are four ways to grow $100,000 into $1 million.
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1. Put it all in an S&P 500 index fund and wait 34 years
One of the simplest investments you can make is buying an S&P 500 index fund. There are many options available, but two of the best exchange-traded funds (ETF) options, which are available in most brokerage accounts, are the Vanguard S&P 500 ETF (VOO -0.05%) and the SPDR S&P 500 ETF (SPY -0.02%). Both have low fees and a strong record of tracking the benchmark index.
Warren Buffett recommends an S&P 500 index fund above any other investment. That's because he sees buying an S&P 500 as more of a surefire bet than buying any single individual stock. He even recommends it over his own company, Berkshire Hathaway.
"I happen to believe that Berkshire is about as solid as any single investment can be in terms of earning reasonable returns over time," he said at Berkshire's 2020 shareholder meeting. "But I would not want to bet my life on whether we beat the S&P 500 over the next 10 years."
So, buying an S&P 500 index fund comes fully endorsed by one of the best investors in history.
The S&P 500 has historically produced a compound total return of about 7% per year, after adjusting for inflation. So if you put your $100,000 into an S&P 500 index fund and simply waited, you'd have the equivalent of $1 million in today's dollars in about 34 years.
That's not bad for someone who managed to build that $100,000 snowball by hustling in their 20s. They can let the market take care of the rest and likely end up with around $1 million by the time they reach retirement age. But those who took a bit longer to reach $100,000 in their accounts will likely need to keep pushing the snowball a little bit.
2. Add $500 per month to your retirement savings for 26 years
If you add just $500 per month to your retirement savings and fully invest all of it into an S&P 500 index fund, you can cut about eight years off your timeline.
You can save $500 per month in a tax-advantaged retirement account like an IRA as long as you have $6,000 per year in earned income. If your employer offers a 401(k) at work, you may be eligible to receive a matching contribution up to a certain percentage of your salary. That can go a long way toward helping you save more for retirement.
It's worth noting that while the S&P 500 has historically returned about 7% per year after adjusting for inflation, it doesn't return 7% year in and year out. When you start adding in contributions to your retirement savings, your total returns are more susceptible to the natural ups and downs of the financial markets. As a result, you may find yourself on a path to reach the equivalent of $1 million in retirement savings sooner or later than 26 years.
3. Add $1,400 per month to your retirement savings for 19 years
If you need to get to $1 million within two decades, adding $1,400 per month to your existing $100,000 is likely to get you there.
The good news is you'll still be well under the contribution limit of your 401(k) if you want to use that as your primary vehicle. That said, you may want to prioritize your IRA if your 401(k) plan has high fees. Still, it's worth contributing at least enough to your 401(k) to get the full match, which can help you achieve that $1,400-per-month savings rate.
The caveat about market volatility becomes an even bigger factor as your monthly contribution rate increases. That's because you're compressing your timeline to reach $1 million, which means a greater effect from the sequence of the stock market returns you experience. Still, there's a very good chance saving an extra $1,400 per month will get you to $1 million in about 19 years.
4. Max out your retirement savings plans for 13 years
If you're already in your 50s and staring down the barrel of retirement, you may be feeling the pressure on your finances.
The good news is you're likely in your highest-earning years, and you may be able to cut some expenses you had in your 30s and 40s, but no longer have in your 50s, like supporting your children.
On top of that, the government gives you the benefit of catch-up contributions for your 401(k) and IRA. Anyone age 50 or older can contribute up to $7,500 extra to their 401(k) per year and up to $1,000 extra to an IRA. That makes the total contribution limit across a 401(k) and IRA up to $38,500 in 2024.
If you max out that limit for 13 years, you should be able to take your $100,000 nest egg to $1 million just by investing in a simple S&P 500 index fund in each of your accounts. If you have the ability and discipline to save that much every year, you'll be ready to handle your retirement budget when you decide to call it quits, whether that's in 13 years or a little bit sooner or later.
