The real recipe for a millionaire retirement: Savings, returns and time – that's all

Adam Levy
The Motley Fool

If you can save just a few bucks a day and invest it, you could become a millionaire – at least eventually. When it comes down to it, three ingredients will determine whether you reach that goal: How much you save, how much you earn on your savings, and how long you allow your savings to grow.

If you want to reach $1 million, you can adjust each ingredient until you reach a combination that will hopefully work for you and your situation. Remember to keep your target numbers within reason. It's not reasonable to think that you'll be able to save for 120 years and retire at age 138. It's also not reasonable to expect 20% annualized returns from your portfolio year in and year out. But many people will find that with dedication and consistency, they'll be able to get to their goal by a typical retirement age.

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Ingredient 1: Savings

Finding room in your budget for savings may not be easy. If you're used to living paycheck to paycheck, you'll have to cut some things in order to save. Try to keep things you value most while cutting things you spend on but receive minimal value from. Even if it's just a few bucks a day, it can add up.

If you're in your 20s, you won't have to set aside much each month to reach millionaire status by retirement age. If you're already in your 50s and have not begun seriously saving for retirement, though, you will need to find a way to massively increase the gap between your income and your expenses so that you can start setting aside significant amounts on a regular basis.

Here are some guidelines for how much you should look to save each month based on the age when you start saving and investing for retirement.


Monthly Savings Required to Reach $1 Million by Retirement


$150 to $650


$350 to $1,200


$900 to $2,400


$2,600 to $6,400

Calculations by author. Based on annualized returns ranging from 5% to 9%. Age refers to when saving and investing begins.

Ingredient 2: Returns

You will not find a bank account offering 7% interest on your deposits. To earn those kinds of returns or higher, you will need to invest your money.

There are lots of ways you can invest. If you want to spend your free time researching individual companies, analyzing their financial statements, keeping up with the news, and determining stock valuations, go for it. You may be able to find some great investments that way, and earn stellar returns on your investments.

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But even using a simple approach like investing in a low-fee broad-market index fund will earn you solid returns over the long term. Such an index fund will provide immediate diversification for your portfolio, cushioning it somewhat from the risks that can come from being too reliant on a few stocks or sectors while letting you benefit from the long-term growth potential of the total stock market.

It's important to go into the investing process recognizing that the stock market doesn't go up in a straight line. Share prices fluctuate every day, and in some years and periods, the value of your portfolio will decline – sometimes by a lot. Keeping your investment time horizon in mind can help you stay the course. If you get deterred by short-term market fluctuations and stop adding to your portfolio – or worse, if you pull your money out of the market during a downturn – it's much less likely that you'll be able to build your portfolio up to seven figures by the time you retire.

Ingredient 3: Time

They say time is money, and in the case of compound growth, that's absolutely true. If you don't invest your money for long enough, you're not giving compounding the chance to work its full magic. Over time, most of the value in your portfolio will come from your investment returns, not your contributions. The longer you save and invest, the more likely it becomes that you'll reach $1 million.

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Ultimately, time is the factor you have the most control over. An interruption in employment or a financial need may reduce how much you can save every month. And you can't control the returns you get from the stock market. But you can plan to work, save, and invest for longer if you have to.

Combine these three ingredients in the right proportions, and you'll have a good chance to enjoy a millionaire retirement.

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