1 Million Ways to 1 Million Dollars: Investing

Today’s post is a guest post from one of my fellow blogger friends. He’s got lots of great posts, so after reading this one here, be sure to check out his blog via the link below. He is also one of the bloggers featured on my Resources page!

Hello, my name is David and I run Zero Day Finance, a blog dedicated to helping you control your spending with the ultimate goal of achieving financial independence. I recently wrote a post about the many paths to $1 million. $1 million is the typical retirement target. With $1 million, you can safely generate $40,000 per year in investment income forever. Combine this with Social Security, and you’ll live a very comfortable retirement. In this post, I’ll show you exactly how to hit a $1 million net worth regardless of your investment timeline.

The Road To $1 Million Is Difficult

Hitting a $1 million net worth is not easy. With the average US income of $38,000 and the median household income closer to $55,000, it may seem completely out of reach for the average person. For people without a plan, this is true. Hitting this milestone requires planning and time. Most likely decades. But this goal is worth the wait, it is worth all of the hard work that you will pour into it. The only thing stopping most people is the lack of a plan. Before, I mentioned that $1 million will provide a comfortable retirement with Social Security. $1 million will generate $40,000 per year in income in perpetuity. The reason for this is the Trinity Study. Basically, you invest your portfolio in a combination of stocks and bonds, and live off your investment gains. Most people who do this will comfortably live off their gains, and pass on a sizable inheritance to their children.

The Power Of Compound Interest

The “secret” to building a $1 million nest egg isn’t a secret. It is simple math that you learned in high school. Compound interest is the key to building up your nest egg. With as little as $12 a day, you will hit your milestone. The longer your investment horizon, the less money it will take to hit $1 million.

42 Year Horizon

The average person will start working around age 23 and retire at 65 — if they are lucky. More and more people wait until they are 70 years old to retire, including my dad. This is because the Social Security payout increases by 8% each year you defer. But let’s assume that we are going to work from age 23 to age 65. This means that we have a total of 42 years to grow our nest egg. Assuming a 7% real rate of return, you need to invest $11.89 cents every day for 42 years. This is doable for the majority of people. To put this in perspective:

  • $11.89 per day
  • $82.23 per week
  • $368.59 per month
  • $4,339.85 per year
  • $182,273.70 in 42 years

Over the 42 years that you invest, you will have contributed $182,273.70. However, your net worth will be approximately $1,000,943. Compound interest essentially multiplied your investments by 5.

30 Year Horizon

Many people who want to retire early do so in their 50’s. This means they invested for 30 years or so. When you invest for 30 years, you still gain a significant advantage from compound interest. However, you will not see a 5x investment gain. To build a $1 million nest egg in 30 years, you must invest $29.01 per day. To put this in perspective:

  • $29.01 per day
  • $203.07 per week
  • $899.31 per month
  • $10,588.65 per year
  • $317,659.50 in 30 years

Investing $29 per day is significantly harder than $12. By trying to retire 12 years earlier, you have to more than double your contributions. Those extra 12 years of compounding interest did a lot of work for your portfolio. In this scenario, your investments were multiplied by about 3.

20 Year Horizon

As FIRE (Financial Independence, Retire Early) became more mainstream, a lot of high income individuals realized that they could retire with 20 years. This is my time horizon. I’ve been investing since I was 23, and I hope to retire by about 40, give or take a few years. Building a $1 million nest egg in 20 years is very difficult, even for people who earn 6 figures in a year. To do this, you must invest $66.85 per day. To put this in perspective:

  • $66.85 per day
  • $467.95 per week
  • $2,005.50 per month
  • $24,400.25 per year
  • $488,000 in 20 years

For most people, investing $66.85 daily for 20 years is simply impossible. I can tell you from my first hand experience that it is definitely doable if you make $80,000+ per year, but this income is extremely uncommon. Over the 20 year time period, your investment has only increased by a factor of 2. We can see that it requires a significant amount more money to retire in 20 years vs. 42. Spreading out your net worth growth over 42 years affords you a significant advantage.

10 Year Horizon

Building a $1 million nest egg is not for the faint of heart if you only have 10 years to invest. This type of retirement is only for super high earners. To show you why, it will take $198.36 invested every single day for 10 years for you to build up your $1 million nest egg. To put this in perspective:

  • $198.36 per day
  • $1,388.52 per week
  • $5,950.80 per month
  • $72,400 per year
  • $724,000 in 10 years

As you can see, building a $1 million net worth in 10 years is impossible for most. To do this, you need to save more than $72,000 per year which is almost double the average pre-tax income. Even with a 50% savings rate (which is extremely rare), you need to earn $145,000 post-tax per year which puts you in the top 2-3% of the US income.

Thoughts On Building $1 Million

Building a $1 million net worth is obviously not impossible. Given 42 years, all it costs is $12 a day. Even on a minimum wage of $60 per day, this is possible. It just takes time, determination, and a little bit of pain. If you are lucky and make an income closer to $60,000 or even $70,000 per year, you have an important choice to make: do you enjoy life now and make a small sacrifice to become a millionaire at 65, or do you tighten your budget and try to achieve FIRE in 30 or even 20 years? For me, I set a goal of retiring in my early to mid-40s. I try to hit a savings rate of about 56% of my post-tax income. I am to invest $100 per day towards my retirement. I rarely hit this goal, but setting difficult goals and sometimes achieving them is much better than setting trivial goals and celebrating every night.

What is your retirement goal, financially and/or age-wise? What are your plans to achieve that goal?

10 thoughts on “1 Million Ways to 1 Million Dollars: Investing

Add yours

  1. Nice breakdown of the years! Also, once you retire, the money in the account will continue to earn dividends even as withdrawals are made. 56% is a high and respectable target and I’m sure you’ll be able to achieve it regularly soon enough. I think I’ll need more than a million to retire and I plan to retire at the standard age. I’ve read place that there are people out there who get depressed sick, etc. and one reason is they retire early and don’t have much to do. I fear I could be one of those people.

    1. Hey SMM,

      First of all thanks for commenting! I’m a match person, so breaking it down by year really helps me figure out what my strategy should be. 56% is definitely high but I would rather set challenging goals instead of easy ones. Failing is perfectly fine. I would like to live on $60k-$80k pre-tax in retirement. I’ll need at least $1.5-$2 million to achieve this which is a huge number, and right now the math is not on my side. I’ll need to keep pushing harder to have any hope of achieving my goals, but that’s why they’re goals.

      If you are concerned with FIRE, check out r/financialindependence, they are actually a pretty good subreddit.

  2. Awesome post. Really goes to show you how important compounding interest really is. Plus $11 a day is fairly small in the grand scheme of things. I am definitely going to have to show my friends this post because it is an eye opener. Thanks for sharing!!!

    1. Hey MustardSeedMoney,

      Thank you! Building a $1 million nest egg takes a little bit of money and perseverance. Most people don’t have the discipline to invest $11 a day for 40 years, but those who will retire millionaires.

  3. Holy hell David. Now I’m grumps at you 😂 I had the same exact draft in my WP right now!!! 1 million ways to get to 1 million. And it’s worst than this one! Now what!

    You can totally do 56%, easily. And once you cross 60% it’ll be like sea breeze by then.

    1. Lol this one has been on my list for a few months, figured I would give Courtney something interesting.

      I’ve been hitting 50%+ since the start of the year, with a high in the 70% during my last big bonus. Hopefully it’ll inch up with a potential bonus for making my first sale as my new company, and as my income increases. I’mm also hoping to find a new apartment for less than $2,000 in monthly rent. First world problems

  4. I was very happy to uncover this web site. I want to to thank you for your time just for this fantastic read!! I definitely savored every bit of it and I have you book marked to look at new information on your site.|

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