Retiring as a millionaire may be easier than you think. With the power of compounding interest, you can become a millionaire by putting aside just a few extra dollars each month.
How Much Do You Need to Save for Retirement?
Here’s how much you need to save each month and how long it will take to reach a million dollars if you invest in an S&P 500 index fund. These numbers assume the index matches its historical ten percent per year rate of return.
- $100 per month = 45 years
- $250 per month = 36 years
- $500 per month = 29 years
- $1,000 per month = 23 years
- $2,000 per month = 17 years
The lesson learned? Anyone can become a millionaire by setting aside only a small amount of money each month over their working life. If you got a late start or want to retire early, you can still get there with smart budgeting.
Where to Save
Warren Buffet recommends S&P 500 funds because they let you own 500 of the strongest companies in the United States at a low cost. Other investors prefer to use total stock market index funds that own every stock on the stock market or to put some of their money into an international index fund to add diversification.
You may also want to consider a target-date fund which gives you a mix of U.S. stocks, international stocks and bonds and automatically lowers your risk as you get closer to retirement. No matter what you choose, how much and how early you save will be the biggest driver of your success.
How to Find the Money
It can be hard thinking about the future when money is tight, but small adjustments add up. Instead of buying things because they’re only $X per month, remember that only $X per month will make you a millionaire.
Simple steps like packing a brown bag lunch and skipping a barista-made coffee can save $10 to $20 per day. If you have credit card debt, paying it off sooner or consolidating it at a lower interest rate can turn money wasted on interest into retirement savings.
The most important thing to do is to start right now. Remember, the sooner you start, the easier it will be to become a millionaire.