Becoming a millionaire may seem like an impossible feat, but it's actually quite achievable, even if you only start saving at the ripe age of 30.
According to Merrill, retirees would need between $1,000,000 and $1,500,000 to live off of $50,000 a year, which is considered the sweet spot for many. Naturally, the earlier you start saving, the easier it will be to hit that magic number by the time you turn 65. But exactly how much will you need to put aside each month to get there if you start at 30 years old?
Brian Stivers, a financial advisor, crunched the numbers for CNBC Select and determined three pathways to a million dollars for 30-year-olds:
With investments that yield a 3% annual return (i.e., bonds), you would need to invest $1,400 a month for 35 years to reach $1,000,000.
With investments that yield a 6% annual return (i.e., bonds and stocks), you would need to invest $740 a month for 35 years to reach $1,000,000.
With investments that yield a 9% annual return (i.e., a stock-heavy portfolio), you would need to invest only $370 a month for 35 years to reach $1,000,000.
Obviously, 30-year-olds will have to save a little more than 25-year-olds to reach the same goals, especially since compound interest is most effective when it has a longer period of time to grow your money. That said, it's never too late to get started — even if you've lost a couple of years, you can always put aside more money than Stivers' estimates, and that will help to get you on track.
It's important to note that Stivers' estimates are contingent on consistent returns from investments. Putting aside money is not enough — you need an additional boost from investments to get the most out of your savings, which means looking into bonds and stocks.
That said, whenever investments are involved, there is always a risk of falling short. A safe practice would be to invest in index funds like the S&P 500, which track the stock market as a whole. This will save you the trouble of having to pick the "right" individual stocks and making more complex decisions about when to buy or sell. While past performance doesn't always indicate future success, relying on these indices would still be a less risky bet.
You could also opt for a roboadvisor to help you with your investment goals. These algorithm-based services help determine your risk tolerance, as well as balance your portfolio automatically so that you don't have to worry about making the allocation adjustments yourself.
