Being a personal finance nerd, I like to play around with different return rates and account balances over time. I wondered if our investment balance was enough to carry us to millionaire status without adding another penny. The next question that popped into my head was how much we would need to set aside for our newborn next year to make her a millionaire. Then curiosity got the best of me and I filled in the spreadsheet for every year. Would you be a millionaire if you stopped investing today? Find out below!
Could also call this post “Are you a Theoretical Millionaire?” because I obviously don’t have a crystal ball to definitively say the below assumptions will be accurate (this is my way of telling you that results may will differ from the below chart, informational purpose only).
Personal Projections vs Peer Comparisons
Outside of having a little fun running numbers, I find a lot of value in looking at our projections across different date ranges. It is very difficult to find people with similar backgrounds to compare ourselves to, so I spend more time focusing on our personal situation and if we will hit goals or targets.
That being said, I do find peer comparisons to be a very useful for motivation. Specifically seeing how people are able to have sky-high savings rates in the 50%+ range. Seeing them motivates us to push higher every year.
Another reason I like sharing information like this is it builds Money Sense. I find that people don’t understand how compound interest works and this is a fun way to see it in action.
Assumptions
- Only include invested Assets (Emergency fund, Home Value, Etc excluded)
- 7% Annual rate of return (Mr Buffet says this is what to expect from long-term market gains) until you are 67 years old.
- You do not add any amount to your investment accounts
On to the money compounding fun!
Looking at the numbers……Would you be a Millionaire?
67 Years – Lets find a way to give every newborn $10,746 dollars! We would have a country full of millionaires. Maybe we could get rid of Social Security then.
49 Years – High School Grads need to have accrued $36,324 to hit Millionaire status at 67 years old. Seems like a lofty goal unless you got the savings bug really young and got paid a lot better than I did back then.
37 Years – I will be turning 30 early next year, giving us* 37 years to standard retirement age (No thanks!). We need $81,808 invested to compound our way to millionaire status. We came up a little shy at the end of Q3, but should be there by the time I hit the big 3-0.
Mrs. AE inherits my age when it comes to retirement, not actual age
27 Years – What a difference 10 years of compound interest makes, you need $160,930.37 – almost double from 10 years earlier. Assuming you started investing at 23 years old, you would need to have averaged $9,466.49 accrued per year (between investment gains and contributions). If you started at 28, just 5 years later you would need to average $13,410.86/year.
1 Year – Look at how much you gain in interest on a 935K account, your hard work is rewarded to the tune of 65K in gains if you built that nest egg. If not, you better come up with some creative ways to generate a lot of investing.
Changing the annual rate of return can alter these numbers drastically. An 8% rate means we would only need $57,985 (down from $81,808) and a drop to 6% spikes it to $115,793.
8% also makes it a lot easier to set Future Mini AE up for Millionaire Status, she would only need $5762.47 (still not happening – we want to retire one day).
Should you stop investing today?
Absolutely not! While this shows what your future balance *could* be if you leave it in the market, it should not be the only information you use when planning for retirement.
Depending on your spending, age and retirement date, a million dollars could be enough to retire comfortably. Using the 4% rule a million dollars would be about $40,000 a year. If you spend more than that, you need to have more stashed away.
How we will use this information
This information will be beneficial for early retirement planning for us. Eventually we will figure out how much we need in our retirement accounts and can see how our current balance stacks up after compounding.
If our retirement accounts are in range (we will be conservative), we can slow down our retirement account contributions and start focussing on taxable accounts for early retirement.
Another option would be to start paying down our mortgage aggressively to free up cash flow and reduce expenses in retirement.
So…. Would you be a Millionaire if you stopped investing Today?
Found this sweet Online Compound Interest Calculator that solves for the variable you leave open in the compound interest equation.
Some products that can help you:
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top-notch security and I am able to connect all of my accounts. Saves a ton of time!
Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They are great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.
I always love seeing these kinds of calculators – I’ve used CNN’s “how long until you’re a millionaire” calculator before too. I like how you’ve laid it out in a chart like this! Compound interest is such a powerful tool. It’s astounding how small amounts compounding over time become large amounts.
They are definetely fun to play around with, and definetely – Compound Interest is a beast if you put it to work for you.
Thanks for the comment Liz!
This concept is one of the things that gives me a level of comfort with my finances. I can look at where we are and know that as long as we keep our expenses low and can pay them every month, we could coast to a moderately comfortable retirement at normal retirement age. It is a good mental guard against fear of job loss. Of course I would prefer to continue saving and investing at a high clip, but the worst case scenario for us isn’t too bad.
Thanks for the reminder!
Feel the same way, makes me feel like there is a light at the end of the tunnel and I need to trust the market for long term growth.
Definetely going to keep it at the high clip as well, rather have to much than to little!
This really shows the value of saving early. Hard to believe that, in theory, some of us could stop saving for retirement and still be millionaires.
I’m also behind, but the great thing is that, with my own debt gone, it’s getting much easier to catch up.
Definetely easier to catch up once the debt is gone, ramp the savings!
I wish this type of lesson was slammed into high school students.
These calculators are fun for playing around. So much depends on the interest rate, though. I really wish Dave Ramsey would stop talking about 12% returns, because that’s not realistic and gives people a false sense of security. 7% is much more realistic but still not guaranteed. However, it makes the numbers a lot more fun than using 3 or 4%!
There really are no guarantees, so it’s good to use a reasonable assumption and Keep Saving, like you said. If our numbers are wrong, we’d rather end up with too much than not enough.
Yes! I hate those numbers. I don’t think I’ll ever estimate more than 4%. I’d rather be pleasantly surprised than seriously disappointed!
I have heard the 12% returns talk from a few other places, I have never read a Dave Ramsey book or listened to his podcast. 12% is an insane projection.
Historical returns show 7% is a reasonable benchmark, but we will definetely stay on the conservative side.
I think Mr. Ramsey bought some Fidelity Magellan back when he first got out of bankruptcy, rode that rocket ship, and that’s colored his thinking ever since. He has only recently started talking about index funds. (Finally!!!!)
I strongly suggest you act like you joined a Dave Ramsey cult until you are out of debt (and that includes your house’s mortgage). He’s 1000% right about gazelle-like intensity and all that. After your throat gets better from all that screaming “I’m Debt Free,” take a lozenge and pivot to a different cult.
Then I suggest you act like you joined a John Bogle cult. Pick up his Little Book of Common Sense Investing. While reading that, save $10k like your hair is on fire so you can buy Admiral Shares of a Vanguard index fund. (I like VTSAX.) Bonus points for reading Ben Graham’s Intelligent Investor, Burton Malkiel’s Random Walk, and William Bernstein’s Four Pillars.
If anyone tells you to find a financial advisor with the heart of a teacher, nod, smile and slowly back away. If someone starts talking about beta, efficient frontier, and modern portfolio theory, hang onto your wallet.
100% correct. I couldn’t have said it better!!!
Womp womp womp. I only have $50K in my Roth. Now, I could play catch up a bit and open a 403(b) (I say catch up because I can put much more in there than in my Roth each year), but our options are so murky. It’s on the to-do list for Winter Break. But I do have another $50K-ish (I think) in my pension fund. It’s only current through the 2015 school year so it’s a bit of a guess. This is me saying that I’m partly terrified and party feeling pretty good at 30.
Haha, if there as much in there as you think there is you are sitting great
Not being able to see an updated account balance would drive me nuts!
Thanks for the comment
Great work with the numbers…
I better keep saving… 😉
I think we all better keep saving…….
Thank you
LOVE this! I have a habit of running the numbers on a regular basis (always tweaking the rate of return, amount invested, etc. ). We would be just fine if we stopped investing today, which, I admit, is a great feeling.
And I think your idea of giving every newborn $10,746 is fantastic. We are going to start a Roth for our 16 y.o. to help him get a good start (and hope he doesn’t touch it too soon…).
Thats awesome! definetely a great feeling.
Thats a great idea on starting a Roth that young. hopefully some of the lessons stick
A million dollar is 40K per year, not 25K, according to the 4% rule.
Thanks for pointing that out Mr. RIP – I put the 25X expenses in instead of the actual withdrawal amount. Math fail.
I’m stuck on the numbers. It’s just $1000 more a year or so for the first 10 years, then it jumps to $2000 more every year, then it jumps to $5000 more every year and so on until you get to $100,000. It’s like wizarding magic!!!
I hope no one uses social security as a safety net. In China, there’s no such thing as welfare or any government aid (unless it’s natural disaster or famine based). So to be in the USA is a pretty huge blessing but it shouldn’t tamper the urgency to save money.
This is why I love reading personal finance blogs #moneynerd ^_^
I’m not usually super self-promoting in comments, but we just made a “Time to FI” calculator, where one of its functions is to calculate how long it will take to reach your FI goal if you just let it sit and grow: https://fetchingfinancialfreedom.com/calculator-time-financial-independence/
Would love to hear if you have comments/feedback 🙂
It’s sweet! I will likely be linking to it in an upcoming FI Action Series Post!