For most of us, getting started is the toughest part of investing. Once you have a decent foundation saved up, compounding can play an incredibly powerful role in getting you the rest of the way to a comfortable nest egg.
With that in mind, these four ways to grow $100,000 into $1 million for retirement savings are designed to inspire you to get that foundation in place. After all, once that first $100,000 is in place, your work may not be over, but the path to millionaire status can get a lot smoother.
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1. Let compounding work its magic on its own
Nobody can guarantee what stocks will do, but those of us who invest do so with the expectation that the overall market will likely rise over time. At the market's long-run historical return rate of around 10% per year, $100,000 will turn into $1 million all on its own in around 24.2 years.
In other words, if you can scrounge up that first $100,000 by the time you turn 40, then you've got a decent shot of retiring a millionaire by 65, simply based on what you've already saved.
2. Keep on socking away the money you've been investing
Of course, there are no guarantees that the market will keep going up -- especially at that pace. As a result, it's rather risky to put all your faith in compounding to get you there.
Fortunately, you've likely been saving something to build up that first $100,000. Generally speaking, it's a lot easier to keep on saving money than it is to start saving it in the first place. So why not keep on investing as your nest egg gets larger, to help that compounding work even better?
The table below shows how many years it takes to take a nest egg from $100,000 to $1 million, based on the amount you're able to sock away each month and the rate of return you earn along the way.
|
Monthly Investment |
10% Annual Returns |
8% Annual Returns |
6% Annual Returns |
4% Annual Returns |
|---|---|---|---|---|
|
$2,000 |
13.0 |
14.8 |
17.2 |
20.7 |
|
$1,500 |
14.4 |
16.6 |
19.7 |
24.3 |
|
$1,000 |
16.3 |
19.1 |
23.2 |
29.5 |
|
$500 |
19.0 |
22.8 |
28.5 |
38.2 |
|
$300 |
20.4 |
24.8 |
31.6 |
43.7 |
Calculations by author. Assumes smooth returns and consistent investments each month.
Every little bit helps. Even $300 a month -- around $10 per day -- is enough to take years off the time it takes to get your money to reach the $1 million threshold. In addition, the more you're able to add to your stockpile each month, the sooner it can reach that goal, even if the market performs well below its historical return rates.
3. Enlist Uncle Sam's help
One way to get more money compounding for you than you could put away on your own is to make your investments inside a traditional 401(k). In a traditional-style 401(k), money you invest comes directly out of your paycheck, before income taxes.
As a result, if you're in the 24% tax bracket, every $100 you invest inside your traditional 401(k) would really only cost you $76 of otherwise spendable money. If your state also has an income tax, then the out-of-pocket cost to you could be even lower.
4. Ask your boss to kick in a bit, too
In addition to Uncle Sam's help, your boss may also help provide a boost to your retirement savings. Many companies offer a match when employees elect to put money aside for their retirement inside the company's 401(k) plan.
Matches vary by employer, but a common one is $0.50 per every dollar the employee contributes, up to 6% of that employee's salary. In that scenario, for every $100 you're investing up until you exhaust your match, your boss kicks in another $50, making the total $150 working on your behalf.
Put a match together with a tax deduction in a traditional 401(k), and you just might be able to sock away around twice as much as you would be able to on your own in an after-tax account.
Get started now
Whether you've already reached that $100,000 milestone or are just beginning your journey to get there, the reality is that it will take time to build a $1 million nest egg for your retirement. The sooner you get started, the more of that time you have available to you, and thus the better your chances of reaching millionaire status by the time you retire.
So get started now, and give compounding, your continued savings, Uncle Sam, and your boss the longest possible runway to work together to help you achieve that goal.
