Want $1 Million in the Bank by Age 50? Here’s How to Get There

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You could reach this number if you save and invest consistently. 

Reaching $1 million in savings is a popular financial goal. To make it even more ambitious, you could aim to have that much by the time you’re 50. If you can do that, you’ll be in a comfortable financial position, and you may even be able to retire early.

Although this could be difficult, especially if you don’t have a high income, it’s more realistic than you might think. This quick guide will show you exactly how to have $1 million in the bank by age 50. We’ll start with how much you need to save per month, and then go over some wealth-building strategies to grow your money.

How much do you need to save to have $1 million by age 50?

The amount you need to save to have $1 million by age 50 depends on a few factors. The most important one is your age. When you start investing sooner, your money has more time to grow through compound interest. Compound interest is when you earn interest on top of the interest you’ve already earned.

Your annual return also makes a big difference. Earning 10% per year through the stock market is going to get you a lot farther than earning 2% or 3% through a bank account. And 10% per year is the average stock market return over the last 50 years.

Let’s say you invest in stocks and average a 10% annual return. Starting from zero, here’s how much you’d need to save per month depending on how old you are:

20 years old: $507 per month25 years old: $847 per month30 years old: $1,455 per month35 years old: $2,623 per month40 years old: $5,229 per month

As you can see, you don’t need to invest nearly as much when you start at a young age. That’s the power of compound interest.

These are all still lofty targets. Most 20-year-olds, for example, probably aren’t going to be able to spare $507 per month. What’s important is to invest as much as you can, as early as you can, so your money has more time to grow. Next, let’s look at some strategies to maximize the growth of your money.

Contribute to tax-advantaged retirement accounts

Retirement accounts allow you to save and invest money while also saving on taxes. There are a few popular types of retirement accounts:

401(k)sIndividual retirement accounts (IRAs)Roth IRAs

A 401(k) is an employer-sponsored retirement plan. You make contributions to it directly from your paycheck, up to an annual limit ($22,500 in 2023 for those under 50). Your 401(k) contributions reduce your taxable income, as you don’t pay taxes until you withdraw funds in retirement. Many employers match contributions up to a certain amount, helping your account balance grow more quickly.

IRAs are retirement accounts that you open yourself. The annual contribution limit is $6,500 in 2023 for those under 50, and it’s a combined limit across any IRAs you have. Traditional IRAs work like 401(k)s in that contributions reduce your taxable income, and you pay taxes when you make withdrawals. Roth IRAs are different in that contributions don’t reduce your taxable income, but withdrawals in retirement are tax-free.

One thing to note about retirement accounts is that there are penalties for withdrawals made before the age of 59 1/2. So, you can use these accounts to get to $1 million by 50, but you’ll need to wait to access that money without penalty.

Invest heavily in the stock market

The stock market is widely considered one of the most effective ways to build wealth. As mentioned above, the average annual return is about 10%. You’re unlikely to find another investment with such a high return and such a lengthy track record of success.

Your retirement accounts, as well as any individual brokerage accounts you have, will offer various investment options. For the most growth potential, you’ll want to have most of your money in stocks. Investing in bonds, on the other hand, is a more conservative option. While bonds work well for preserving wealth, stocks are better for building it.

Retirement plans and stock brokers typically have plenty of funds that invest in a large number of stocks. One of the best options is an S&P 500 index fund. This will track the performance of the 500 largest companies on U.S. stock exchanges. You’ll get a portfolio with all the largest U.S. companies in a single investment.

Putting it all together

To sum it up, if you want $1 million by age 50, invest as much as you can afford in stocks. It’s best to start doing this right away, because the younger you are when you start, the less you need to invest per month to reach $1 million.

You can invest your money in retirement accounts, including 401(k)s and IRAs, as well as brokerage accounts. Contribute to retirement accounts first because of the tax savings they offer. If your employer will match your contributions to a 401(k), make sure to max out your employer match, as it’s essentially free money.

If you follow those tips, and you invest in index funds, you’ll build wealth. Whether you get to $1 million by 50 will depend on how much you invest and the performance of the market. Either way, these are great habits to follow for long-term personal finance success.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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