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.
- 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.