Image source: Getty Images Is a seven-figure savings account within reach? Key points
Becoming a millionaire by 55 takes a little sacrifice and effort.
Starting to save money ASAP is crucial to becoming a millionaire by 55.
Achieving millionaire status can give you financial freedom and enable you to avoid spending your life worried about money. It may even allow you to retire early depending on your spending needs.
But is it possible to save a seven-figure nest egg? For many people, the answer is yes. In fact, if you follow the right steps, you may even be able to do it by the time you hit the age of 55. Here’s how. 1. Start investing as early as you can
If you want to become a millionaire by 55, you’ll need to put your money to work as soon as possible. The earlier you can begin investing and earning returns, the more your invested funds will grow on their own because returns can be reinvested. This process, called compound growth, enables you to invest less and still end up a millionaire.
To understand just how big an impact investing early has, consider how much you’d need to invest each month to become a millionaire by 55 if you started at 25 versus at 35. If you start at 25, you’d need to save $735 per month, assuming an 8% average annual rate of return.
If you start at 35, you’d need to save $1,821 per month, assuming the same rate of return.
Of course, even if you’re starting late, you can still become a millionaire by the time you reach 55 — you just need to be a lot more aggressive in the amount you save. 2. Open the right kind of brokerage account
You’ll likely need to put some of your money in the stock market to earn reasonable returns if you want to become a millionaire by 55 — especially if you don’t have a fortune to invest. And you’ll need a brokerage firm to help you do that.
The good news is, there are several online brokers that make it cheap and easy to invest. You’ll need to pick the right one, though, and the right type of account.
If you’re trying to become a millionaire by 55, you’ll want to make it a point to minimize investing fees that can eat into returns. Look for a broker that doesn’t charge commissions and that offers a wide variety of low-fee investments such as ETFs.
You’ll also need to think about how much money to put into accounts that offer tax advantages. For example, IRAs allow you to make contributions with pre-tax dollars, which lowers the amount of your taxable income. But you won’t be able to take money out until you’re at least 59 1/2 without incurring an early withdrawal penalty. So, if you plan to start living on your millions at age 55, you’ll need some money in a taxable brokerage account that you can access before you reach 59. 3. Set detailed investment goals
If you want to become a millionaire by 55, you need to have a clear plan to get you there. You’ll want to make your investment goals as detailed as possible.
It’s easier to achieve big goals than small ones, so you should figure out exactly how much money you need to save each month for your nest egg to grow to at least $1 million by 55.
There’s a great investment calculator on Investor.gov that will allow you to put in your savings goal — $1 million or more — as well as to specify the initial investment you’re starting with, the years you’ll be allowing the money to grow before hitting your target, and your projected returns. The calculator will tell you what you need to save each month to achieve your objective. 4. Make a budget built around investing
After you’ve calculated the amount to save each month to become a millionaire by 55, it’s time to work that amount into your budget. Add up your income sources and then subtract must-pay bills, including investing as one of those bills. After covering the essentials in your budget, divide up the rest for discretionary spending.
If you find your income doesn’t stretch far enough to cover the necessities and save the required amount, you may need to take steps to earn more such as finding a side hustle . Or you may decide to make major life changes to cut spending, such as moving to […]
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