Of course, just about everyone would like to be a millionaire investor. The ultimate investment goal of achieving financial independence where the level of wealth reaches a certain comfort zone is on the minds of many investors. What is the ideal way to achieve this? The majority of successful investors built wealth over time by dollar-cost averaging into stocks. This method takes the guesswork out of trying to time the market. In the end, short-term trading can be a zero-sum game as many gains are offset by the losses and the high-cost of commissions. It’s difficult for short-term traders to make the right call consistently. Using a 401k or similar plan to dollar-cost average is a great way to grow wealth over the long-haul. By putting an even amount of money into the market at regular intervals, investors can grow wealth tax free and not fret over the short-term market fluctuations.
The first step is to make a commitment to save a percentage of earnings. Investors should consider contributing the maximum amount allowed or at the very least, contribute the amount that would capture the entire company match. I would recommend a 10%-15% contribution for most individuals. By looking at a few examples, we can get a better picture of how to reach the $1 million milestone.
Let’s take a 25 year-old who is making $40,000 per year and contributing 10% of his salary to his 401k. Assuming that this individual does not yet have anything saved for retirement and that his employer contributes 1% of his salary to the plan annually with a 10% rate of return, he would reach $1 million at about age 57. After his entire career, this individual would have about $2.3 million at age 65.
Next, we have a 35 year-old woman who earns $45,000 per year and contributes 15% of her salary to her 401k. She already has $50,000 saved for retirement. Assuming a 10% rate of return, she would reach $1 million approximately at age 59. If her employer contributed 1% annually to her 401k, she would also have about $2.3 million at age 65.
We have a 55 year-old man who earns $75,000 per year and contributes 10% of his salary to his 401k. He has $200,000 saved for retirement. Assuming the same 10% rate of return, this individual wouldn’t reach $1 million until age 68. If his employer contributed 1% annually to his plan, this man would have about $682,000 at age 65.
These examples can be calculated at trend-chart.com and bankrate.com. These calculators are fun tools to play around with to figure out how much wealth you can acquire. Another important calculator, at bankrate.com, shows how much you’ll need at retirement. This is something that is important for everyone unless they are already independently wealthy.