I Earn $40,000 a Year. Can I Still Retire a Millionaire?

If you earn $200,000 a year, it's pretty fair to say that you have a good chance of retiring as a millionaire. Granted, sometimes, people who earn really high salaries have to pay a fortune to live in areas where wages like that are available. But for the most part, if you earn a nice wage, your chances of retiring wealthy are probably higher than for people earning less.

If you make $40,000 a year, you might assume that retiring a millionaire is out of the question. But here's why you'd be wrong.

It's all about saving and investing consistently

If you're earning $40,000 as an annual salary, you may not be rolling in money. But if you're able to set aside a portion of your salary in an IRA or 401(k) for retirement savings purposes nonetheless, you may be surprised at how much wealth you could grow over time.

Let's make a few assumptions about your financial situation. Let's say your current $40,000 salary never rises from where it's at today (unlikely, but it makes our illustration easier). 

Let's also say you're able to save $200 a month for retirement, which is roughly 6% of your salary, your entire career. That's not an easy percentage of your income to part with, but it may be possible if you live frugally and manage your paycheck well. 

Let's also assume you invest your savings heavily in stocks and generate an average annual 10% return in your portfolio. That's consistent with the market's average over the past 50 years. Finally, let's assume that you begin saving for retirement at age 22 and stop working at the age of 67. 

Want to know what savings balance you're looking at? Well, contributing $200 a month, or $2,400 a year, toward retirement over a 45-year window means parting with a total of $108,000. But thanks to your investments and compounding returns, the ending balance you're looking at in this scenario is a rather impressive $1.725 million.

How is that possible, you might wonder? Well, remember, you're earning 10% on your money each year in this example. But you're then also reinvesting the extra money you're earning year after year so that all told, you're able to accumulate a lot of wealth.

Don't write off a millionaire's retirement due to a lower wage

To succeed at retiring with a lot of money, you have to do a few things:

• Save consistently
• Give yourself many years to build wealth by investing in a brokerage account
• Go heavy on stocks or comparable assets with a history of generating strong returns

If you do these things, you may be surprised at how much money you wind up with -- even if your wages aren't particularly high.

Remember, it's possible to earn a six-figure income and retire on the brink of poverty. It's also possible to earn a heck of a lot less and retire with enough money to meet your lifelong goals. If you're willing to commit to the cause, you may be surprised at how much retirement wealth you end up with -- so don't assume that your senior self is doomed just because you're a lower earner.