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How much a 45-year-old needs to invest to become a millionaire
When making calculations, Stivers accounted for three different return rates: 3% (a conservative portfolio of mostly bonds), 6% (a combination of stocks and bonds) and 9% (a portfolio that’s stock-heavy or contains index or mutual funds yielding around 9% on average). And, he used a retirement age of 65, which would give 45-year-olds just 20 years to save. Here’s how much 45-year-olds would need to invest each month to become a millionaire by the traditional retirement age:
- If making investments that yield a 3% yearly return, a 45-year-old would have to invest $3,100 per month to reach $1 million by age 65.
- If they instead contribute to investments that give a 6% yearly return, they would have to invest $2,200 per month for 20 years to end up with $1 million.
- But if they choose investments that yield a 9% yearly return, which is comparably more aggressive, they would need to invest $1,600 per month for 20 years to reach $1 million.
If you were to start investing for a 9% yearly return just five years earlier at age 40, you would need to contribute $950 per month to reach $1 million by age 65. That means contributing $650 less per month than you’d have to contribute if you wait until age 45.
The earlier you start investing the less money you have to contribute to your investments to reach $1 million. This is because compound interest is most powerful when it has a longer amount of time to grow your money.
Depending on your circumstances, making such aggressive contributions may feel like a squeeze. Especially since as you get older you may take on expenses that you didn’t have when you were younger, like raising a child, caring for aging parents, making life insurance payments, or even paying tuition for children who are ready to head to college.
All these costs can make it difficult to simultaneously make aggressive contributions to your investments. However, keep in mind that even making smaller contributions can grow and potentially have a profound impact on your financial situation over time. Starting with something is more impactful and puts you in a better position than if you were to not invest at all.
So even if you can’t afford to invest $1,600 a month, the sooner you start investing what you can, the more time compound interest has to work its magic.
If you’re very new to investing or your income varies so you don’t know how much …….