How to retire a millionaire? Follow this recipe.

If you can save a few dollars a day and invest it, you could become a millionaire, at least eventually. Ultimately, three ingredients will determine whether you achieve this 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 hit $1 million, you can tweak each ingredient until you hit a combination that hopefully will work for you and your situation. Remember to keep your target numbers within reason. It is unreasonable to think that you will be able to save for 120 years and retire at 138. Nor is it reasonable to expect 20% annualized returns from your portfolio year after year. But many people will find that with dedication and consistency, they will be able to achieve their goal at the usual retirement age.

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Ingredient 1: Savings

Finding room in your budget to save might not be easy. If you’re used to living paycheck to paycheck, you’ll need to cut some things to save. Try to keep the things you value the most while cutting back on expenses for which you receive minimal value. Even if it’s just a few dollars a day, it can add up.

If you’re in your 20s, you won’t have to save a lot each month to reach retirement-age millionaire status. If you’re already in your 50s and haven’t started saving seriously for your retirement, you’ll need to find a way to massively increase the gap between your income and your expenses so you can start putting money aside. important on a regular basis. .

Here are some guidelines on how much you should be looking to save each month based on the age at which you start saving and investing for your retirement.

Age

Monthly savings required to reach $1 million at retirement

20s

$150 to $650

30s

$350 to $1,200

40 years

$900 to $2,400

the 50’s

$2,600 to $6,400

Author’s calculations. 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 these types of returns or more, you will need to invest your money.

There are many ways to invest. If you want to spend your free time researching individual companies, analyzing their financial statements, following the news, and determining stock market valuations, go for it. You may be able to find good investments this way and get exceptional returns on your investments.

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But even using a simple approach like investing in a low-fee general index fund, you’ll get solid returns over the long term. Such an index fund will provide immediate diversification to your portfolio, cushioning it somewhat from the risks that can arise from overreliance on a few stocks or sectors while allowing you to benefit from the long-term growth potential of the whole stock market.

It is important to go into the investment process recognizing that the stock market does not go up in a straight line. Stock prices fluctuate every day and in some years and periods the value of your portfolio will decrease, sometimes by a lot. Keeping your investment time horizon in mind can help you stay on track. If you get discouraged by short-term market fluctuations and stop growing your portfolio – or worse, take your money out of the market during a downturn – it’s much less likely you’ll be able to build your portfolio up to seven figures when 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 long enough, you don’t give the compounding a chance to work to its full potential. Over time, most of the value of your portfolio will come from your investment returns, not your contributions. The longer you save and invest, the more likely you are to hit $1 million.

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Ultimately, time is the factor over which you have the most control. A job interruption or financial need can reduce the amount you can save each month. And you can’t control the returns you get from the stock market. But you can plan to work, save and invest longer if needed.

Combine these three ingredients in the right proportions and you have a good chance of enjoying a millionaire retirement.

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