How Much Do You Have to Save to Become a Multimillionaire?
After a friend recently mentioned his path to a $2 million net worth, it raised two key questions: How much do you really have to save to become a multimillionaire? And is it really achievable within a working lifetime?
The amount you need to save each month to reach that milestone depends on two key factors. The first is how much time you have between now and when you're no longer able to sock away money. The second is what rate of return you'll earn on your investments. Still, that $2 million net worth is within the reach of most people if they start early enough and invest consistently enough throughout their careers.
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How much is enough?
The table below shows how much you'll have to invest each month to reach that $2 million milestone, depending on what rate of return you earn along the way:
| Years to Go | 9.6% Annual Returns | 8% Annual Returns | 6% Annual Returns | 4% Annual Returns |
|---|---|---|---|---|
| 45 | $218 | $377 | $722 | $1,321 |
| 40 | $354 | $569 | $999 | $1,686 |
| 35 | $579 | $866 | $1,397 | $2,182 |
| 30 | $956 | $1,333 | $1,981 | $2,872 |
| 25 | $1,600 | $2,089 | $2,872 | $3,877 |
| 20 | $2,751 | $3,373 | $4,307 | $5,435 |
| 15 | $4,966 | $5,741 | $6,843 | $8,100 |
| 10 | $9,910 | $10,860 | $12,143 | $13,537 |
Table by Author.
Over the long run, the stock market has delivered returns around that 9.6% annualized pace. That indicates that the friend who reached that $2 million milestone by investing heavily in stocks and stock funds likely did so by investing around $2,751 each month –- an impressive but not impossible level.
If your timeline is longer, you can get away with saving less -- much less, in fact -- and still wind up a multimillionaire. But if you have less time remaining in your working career, the challenge gets substantially tougher -- to the point where even very high earners would find it an uphill battle.
How can you save that much?
While the numbers farther down the list may seem daunting, your boss and Uncle Sam may be working together to help you come up with that kind of cash. Between your 401(k) and your IRA -- and your spouse's, too, if you're married and your spouse works -- it's possible to save thousands each month in a tax-advantaged way. If your boss also kicks in with a match to your 401(k) contribution, it's also counted toward that total, reducing your own out-of-pocket costs of getting there.
In an IRA, typical workers can contribute $5,500 per year as of 2018 if they're under age 50, or $6,500 per year if they've reached age 50 or higher. That's $458 and $541 per month, respectively. You do need a salary or other form of earned income to contribute to an IRA, but if you're married and only one spouse works, you can likely contribute to a spousal IRA for the benefit of the nonworking spouse.