How to Retire With at Least $1 Million

Most people will not follow the advice in this article because it precludes living a flashy lifestyle, and most people would rather look like they’re rich than actually increase their net worth.

Please note this article assumes you are making at least $40,000 per year. It’s possible to retire with at least $1 million if you are making less, but doing so requires you to live even more frugally in the process.

Let’s assume you want to retire at or before 65 (preferrably before, because working sucks!). Also assume you don’t even start working until you are 25. So you’ve got 40 years to accumulate at least $1 million. Ready?

Here it goes: Save and invest $5,000 per year into whatever mutual fund/stock fund/exchange traded fund you like. Assuming you get average market gains of 8% per year, you will have $1 million in less than 40 years. So for example, the first year you invest $5,000. At the end of that year you have roughly $5,400 ($5,000 + 8% interest). At the beginning of the next year, you add another $5,000, giving you $10,400, and at the end of that second year you have $11,232 ($10,400 + 8% interest), and so on. Here’s a breakdown:

Year Value at year end
1 $5,400.00
2 $11,232.00
3 $17,530.56
4 $24,333.00
5 $31,679.65
6 $39,614.02
7 $48,183.14
8 $57,437.79
9 $67,432.81
10 $78,227.44
11 $89,885.63
12 $102,476.48
13 $116,074.60
14 $130,760.57
15 $146,621.42
16 $163,751.13
17 $182,251.22
18 $202,231.32
19 $223,809.82
20 $247,114.61
21 $272,283.78
22 $299,466.48
23 $328,823.80
24 $360,529.70
25 $394,772.08
26 $431,753.84
27 $471,694.15
28 $514,829.68
29 $561,416.06
30 $611,729.34
31 $666,067.69
32 $724,753.10
33 $788,133.35
34 $856,584.02
35 $930,510.74
36 $1,010,351.60
37 $1,096,579.73
38 $1,189,706.11
39 $1,290,282.59
40 $1,398,905.20

*note that this table does not account for taxes which may vary depending on your investment vehicle, dividend distribution, etc.

By following this method you will actually reach $1 million at the end of year 36, four years ahead of schedule.

One million dollars can secure a relatively stable retirement by investing risk free in something that pays 5% interest, like CDs (which are occasionally at 5%), bonds, some low risk funds, etc. Five percent interest on one million will pay $50,000 per year without ever touching the principal. $50,000 per year isn’t much, but it’s more than our hypothetical person making $40,000 per year is used to living off of, and they no longer have to work.

Now, $1 million isn’t really that much money, and will be even less in 40 years due to inflation when you retire, but most people will not even achieve this goal. Why not? Because it will require most people to live much more frugally than they want to. If someone is making $40,000 per year, that’s roughly $30,000 after taxes. If they invest $5,000 of that, it means they only have $25,000 to spend the entire year. Most people won’t do that. It means they will have $5,000 less to spend each year, and most people would rather use that $5,000 per year ($416 per month) on something flashy like a more expensive car payment, or a lavish vacation, or expensive clothes.

I’ve just shown how someone making $40,000 per year can retire with $1 million in less than 40 years. But most people in the corporate world will end up making much more than $40,000 per year, and many people will be married at some point in their lives which can significantly increase household income.

I won’t bore you with another chart, but if you’re making $60,000 per year, and you invest $10,000 per year instead of $5,000, you will have $1 million at the end of year 28, and $2.7 million at the end of year 40. Invested at 5% risk free, that’s $140,000 per year for doing nothing. Is that enough for you?

Let’s look at one more example. A couple is married and have a combined yearly income of $100,000. They are smart and able to live frugally, and invest $30,000 per year. They begin when they are 30. They will be worth $1.7 million after 17 years (when they are 47), and if they stick it out until retirement age at 65, they will be worth $5.5 million, which if invested risk free at 5% per year, is $275,000 per year for the rest of their lives without having to work. Is that enough for you?

It’s an easy choice if you ask me, but some people would rather have their leased 7 series BMWs and their daily Starbucks.

3 Replies to “How to Retire With at Least $1 Million”

  1. So what would you rather do, enjoy your leased 7 series BMW and Starbucks when you’re 25 years old and in the prime of life….or when you’re 65 years old and preparing yourself for death?

    I agree with what you’re saying for the most part, but I think a lot of people tend to forget that the days we’re living right now are the only days we’re guaranteed. I’m not a big fan of the “Live and spend as if each day were your last” and certainly not about living beyond your means like a lot of people do. However I’ve got to say that if you’re intent on letting the healthiest years of your life pass you by while you live in (relative) squalor, you could be potentially accused of missing the point.

  2. I have to agree with Sam’s post. Your article also has the assumption that you will be making 8% a year on your 401k (or other investment), which simply cannot be counted to happen.

    I love my job and your blog makes me worry what could be lurking for me at future employers. If I hated my job as much as you, then I would try to find another.

  3. Joe and Sam, You guys are total fu<k wads. Since its inception the stock market has AVERAGED a 16% rate of return!!! This includes the current recession and the depression in the 30’s/40’s. Stop trying to impress others with your shitty imports and high lifestyles. It’s called moderation!! Living below your means doesn’t constitute “squalor”. If more people lived below their means then maybe the US economy wouldn’t be in the current, proverbial shitter that it’s in now.

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