4 Steps to Becoming a Millionaire by Age 65

On paper, becoming a millionaire by 65 can be extremely simple, particularly if you have time on your side. But that doesn't mean it's easy. It involves consistently investing a portion of your income, even when there are other demands on your bank account. Living within your means and avoiding debt are both powerful millionaire-making habits. 

The good news is that you don't need to inherit a windfall from a rich aunt or come up with an incredible business idea to build wealth. A survey by Ramsey Solutions into the backgrounds of millionaires showed that 79% of them didn't inherit family money. Indeed many are accountants, architects, teachers, or hold other relatively ordinary jobs.

Here are four key steps to take to become a millionaire by 65. 

1. Once you have emergency savings, invest for the future

There's a big difference between saving and investing. Your savings are for cash you might need in the near future or are putting aside for a specific goal such as a vacation. Having three to six months' worth of emergency savings is an important financial foundation because it gives you a cushion against the unexpected. But savings accounts pay relatively low rates of interest, which means saving alone will only take you so far on your millionaire journey.

Investing, on the other hand, is about buying assets such as equities, bonds, or real estate that will generate higher returns over time. There are no guarantees, but historically, investments are a proven way to build wealth. Investments carry higher risks than money you leave in the bank, and there may be years when your portfolio loses value. It's important to think long term and only invest money you don't think you'll need in the coming five years or more.

If you want to retire with a decent sum of money behind you, consider opening a brokerage account and making regular contributions. The S&P 500 is a good yardstick for stock market investments. Over the past 30 years, it's delivered a compound average annual growth rate of over 10% per year before inflation. That's an average, but compared with the 0.25% to 4% you might get from a savings account, over time it can add up.

2. Give yourself time

If you're in your 20s or 30s, the earlier you start investing for the future, the more time your money has to reach that much-vaunted $1 million. The reason? Once you start earning interest on your interest -- also known as compound interest -- your money can snowball. Here's a table to illustrate what would happen to a $5,000 investment earning 7% interest every year.

How a $5,000 investment appreciates at 7% APY:

If you did nothing to that money, in 40 years, it could be worth almost $70,000 more than you initially invested. But if you're able to make regular contributions, millionaire status is within your reach. For example, let's see how that table breaks down if you were able to contribute $400 a month on top of the original $5,000 investment. 

How a $5,000 investment appreciates at 7% APY with monthly contributions of $400:

To some extent, we're just playing with numbers here. In reality, there will be years when your investments perform extremely well, and others when everything seems to be in the red. Inflation also plays a part, as each dollar has less buying power with every passing year. Even so, the example above shows how a 25-year-old could become a millionaire by the age of 65. In that case, less than $200,000 in contributions could eventually add up to a $1 million portfolio.

3. If you don't have time, don't panic

Not everybody has the luxury of time. That doesn't mean you can't become a millionaire by the time you're 65. But it might mean you have to do more heavy lifting to get there. You're not alone -- many of us weren't thinking about retirement when we were in our 20s and trying to get an education, get a foot on the career ladder, or just enjoy our youth. 

Think about what percentage of your paycheck you can realistically put toward your retirement. Might you be able to invest 15% of your income? More? Depending on how important it is to you to reach $1 million, there may be areas you can make cuts in spending. Or perhaps you can take on a side hustle or work extra hours so you have more money you can invest.

Wanting to become a millionaire is one thing, but it's also a fairly arbitrary figure. Try to work out how much you actually need in your old age. Use your current monthly budget as a rule of thumb, taking into account factors like commuting and other costs that won't apply if you're not working. If you can estimate how much you'll spend in retirement, you can start to work out how much you'll need to save to get there.

4. Maximize your tax-advantaged contributions

Understanding tax-advantaged accounts, such as 401(k)s and individual retirement accounts (IRAs) can give you more money to invest or save for your old age. A 401(k) is an employer-sponsored account, with the added bonus that many companies will match a certain percentage of your contributions. If your employer offers one, find out how much it will contribute and how much you can put in. If your workplace doesn't have a 401(k), look into an IRA or a Roth IRA to get tax breaks on your retirement savings.

It's all too easy to push saving for retirement to the bottom of your financial to-do list, especially in your 20s and 30s. However, if your goal is to be a millionaire by the time you're 65, the trick is to make regular investments and give your assets as much time as possible to appreciate. Play around with compound interest calculators online to see how much you'd need to invest and how long it might take to reach $1 million.