Question: I have $100,000 in my retirement account, but I’d like to get to $1 million before retirement. How do I turn $100,000 into $1 million?
Answer: Reaching any savings goal depends on several factors: the time you have, the amount you can save and how much your money grows. Combining each of these elements in a projection allows you to develop a plan to reach your goal.
So, let’s see what it might look like to go from a starting point of $100,000 to a retirement savings goal of $1 million.
[READ: What Is the $1K Per Month in Retirement Rule?]
How Much Can You Save to Reach $1 Million?
Saving is a matter of disciplining yourself to set aside the amount you need to reach your goals. A rule of thumb is to try and save 10% to 15% of your income.
Since you are talking about retirement savings, it’s important to mention workplace retirement plans. Saving through a retirement plan like a 401(k) or 403(b) provides two major benefits:
— Tax advantages
— Employer matching
If you contribute to a tax-deferred retirement plan you’ll get to deduct your contributions from your current year’s taxable income. This potentially allows you to save more. Your money will then grow on a tax-deferred basis, with interest, dividends and capital gains shielded from taxation until you take a withdrawal. Roth accounts do not provide you with an upfront deduction, but they provide you with tax-free withdrawals in retirement.
Employer matching contributions are also valuable. As an example, maybe your employer provides a 50% match. For every dollar you contribute, your company will add another 50 cents up to a limit. Taking advantage of this benefit and ensuring you contribute enough to receive every match you are eligible for is one of the easiest ways to boost your savings.
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How Much Time Do You Have to Save?
The more time you have to save, the more likely you are to reach your goal. This is why it’s important to start saving early. Time works in your favor for several reasons.
— The longer you have, the more paychecks you’ll get along the way. If you’re saving a portion of each paycheck, there’s more money going into savings.
— Your growth will compound over time. Compound growth is the growth you get on your investment earnings. For example, say you earn 10% on $1,000. You now have $1,100. If your new balance grows by 10% again, you’ll have $1,210 rather than $1,200. That extra $10 is the compound growth. It appears small at first. But over time, compound growth can take you a long way.
How Will Your Savings Grow?
The way you invest your savings will make a big difference as well. A more aggressive investment approach will likely produce a higher long-term average return, but it will be more volatile. A conservative approach may be more stable, but may not grow as much over time.
When choosing your approach, it’s important to consider your risk tolerance and feelings toward market volatility. The length of time you have also matters. If you’re young and still many years away from retirement, you don’t have to worry as much about fluctuations. If you’re near retirement, you may want to take less risk.
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Putting It All Together
Now that you know the major inputs required to estimate what you need to do to turn $100,000 into $1 million for retirement, let’s see some examples. Your annual savings amount is in the top left corner for each of the tables below. Look across the top to see the number of years you have left to save, and look down the left side to see the average rate of return. The values in the middle represent your total savings balance.
The first box displays what will happen if you save $5,000 per year on top of the $100,000 initial investment. If your savings have grown by 7% each year for 20 years, you’ll have $606,294. After 30 years at 9%, you’d have $2,069,644. These numbers should give you a good estimate of how much you’ll need to save and how aggressively you may need to invest to reach your goal by the time you plan to retire.
$100K to $1 Million: $5,000 Annual Savings
| 10 years | 20 years | 30 years | |
| 5% return | $228,923 | $438,926 | $780,998 |
| 7% return | $270,633 | $606,294 | $1,266,591 |
| 9% return | $319,538 | $839,264 | $2,069,644 |
$100K to $1 Million: $10,000 Annual Savings
| 10 years | 20 years | 30 years | |
| 5% return | $294,957 | $612,522 | $1,129,802 |
| 7% return | $344,551 | $606,294 | $1,771,956 |
| 9% return | $402,339 | $839,264 | $2,812,520 |
$100K to $1 Million: $20,000 Annual Savings
| 10 years | 20 years | 30 years | |
| 5% return | $427,025 | $959,715 | $1,827,410 |
| 7% return | $492,387 | $1,264,272 | $2,782,686 |
| 9% return | $567,942 | $1,675,732 | $4,298,272 |
$100K to $1 Million: $30,000 Annual Savings
| 10 years | 20 years | 30 years | |
| 5% return | $559,093 | $1,306,907 | $2,525,018 |
| 7% return | $640,223 | $1,702,924 | $3,793,417 |
| 9% return | $733,545 | $2,233,377 | $5,784,024 |
$100K to $1 Million: $40,000 Annual Savings
| 10 years | 20 years | 30 years | |
| 5% | $691,161 | $1,654,100 | $3,222,626 |
| 7% | $788,059 | $2,141,576 | $4,804,147 |
| 9% | $899,148 | $2,791,022 | $7,269,777 |
So How Can You Turn $100K Into $1 Million for Retirement?
There are no magical solutions when it comes to saving for retirement. Consider how long you have, the amount you can save, and your approach to investing. Setting realistic goals and understanding what you’ll need to do to reach them allows you to develop a plan.
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Ask a Financial Pro: I Have $100K Saved for Retirement. How Do I Turn That Into $1 Million? originally appeared on usnews.com
