When Will You Be a Millionaire?

Let’s say you’ve got your finances under control, you’re putting money away monthly, and you’re generally on a glide path towards a stress-free retirement.  Do you have any idea when you’ll hit your retirement target?

The Millionaire Math

Put away that slide-rule and that pen and paper – I’ve done the math for you.  Just plug in your monthly savings, expected inflation, expected return, your goal, and the amount you’ve got today and let Don’t Quit Your Day Job do the millionaire math (two million?) for you.

How to Be a Millionaire

If you play with this calculator for a while, you’ll notice that it points you down a familiar path – if you make many small, good decisions over a long enough period of time you’ll eventually reach your goal.  That much shouldn’t be surprising.

The surprising part?  When our friend Mochimac asked us if we had the capability to build this tool, she also asked if we could run other monthly savings amounts automatically.  You can see the results of that request.

Hit ‘calculate’ using the default numbers above and you’ll see something very interesting in the two results sections:

• At $150 a month, you’ll reach $1,000,000 in this scenario in 43.25 years with 8% real returns (starting with $10,000).
• $75 a month won’t take twice as long, and $300 a month won’t cut the time in half.

The Miracle of Compound Interest

Enter Compound Interest, stage left.  That’s right – at some point your money will be working much harder than your monthly contribution.

Even $300 a month in that scenario would take 36.93 years to grow a stash to $1,000,000 in today’s money.  If you did want to cut the time in half from the scenario with $150 a month?  Step up your game – you’re going to need around $1,400 a month, all else being equal.  You’re looking at what Albert Einstein (supposedly) called the greatest wonder in the universe.

Time Trump the Amount Saved Monthly

If you’ve got your monthly savings set, the math I showed you above probably depressed you a bit.  Even when you bring a lot more money to the table, the amount you save a month makes less of a difference in time-span than return.  While it takes a roughly $1,250 increase in savings to cut the time-to-millionaire in half in that scenario, you could also do it if you double your before-tax-and-inflation return to 20% annually.

The bad news?  It’s tough to get 20% returns!

If you followed our trailing return S&P 500 calculator, 0% of the samples in our dataset returned 20% a year for 20 years (pre or post inflation!).  In fact, only 30.32% single years in the S&P 500 beat that lofty goal.

That leaves us with time.  The longer you can leave your money invested, the better.  Your largest gains in net worth (well, and losses in some years) will come near the tail end of your investing horizon.  Why?  That’s when you’ve got the most assets at stake, blowing in the prevailing winds of the market.

How to Become a Millionaire

It’s simple, really.  If you want to become a millionaire, save money every month (or every paycheck), and leave the funds untouched for as long a period as possible.  No one can predict future returns for stocks and bonds, (although DQYDJ can show you the past returns of treasuries and the S&P 500) but we can tell you that 10% returns in the face of 2% inflation are relatively ambitious goals.

Do this for me: save regularly, check rarely, and celebrate wildly when you hit your retirement goal.