If you make about $65,000 and your partner also makes about $65,000, you can reach a net worth of $1 million in just 10 years!
Before you say that’s impossible, let me break down the simple math and strategy.
Part 1- The simple math and strategy.
- Max out your 401k and IRA each year. Ask your partner to do the same.
You contribute up to $19,500 to your 401k as an Employee for 2021. You are allowed to contribute up to $6000 to your IRA for 2021. This means you can contribute a total of $25,500 each year into your Retirement accounts. - Which investment should you buy in your 401K/IRA?
Simply buy an S and P 500 Index Fund. Don’t buy anything else. Buy Vanguard’s S and P 500 Fund if it’s available since they have the lowest fees. - Wait 10-12 years, and you/partner will be a millionaire! It’s that simple!
How did I reach this estimate? Let’s run the numbers.
Historically the S and P 500 has returned 10% a year on average over the long run.
No one can say for certain what an S and P 500 index fund will give you in the future. Experts say it’s reasonable that an S and P 500 index fund will give you 6%-10% return a year on average over a long time period.
Let’s say your 401k/IRA only gives you a 6% yearly return over 12 years. You will reach $1 million in 12 years! (You can use an online compound calculator to calculate the return. Input $51,000 each year, and input 6% annual return.)
Let’s assume your 401K and IRA gets a 10% compounded yearly return over 10 years. You will reach reach $1 million in 10 years!
You might say, “If I invest so much money into my 401k and IRA, I won’t have any money left for living and having fun!”
Well as a couple, after paying Fed Taxes and MA Taxes, you will still have about $60,000 to spend on living expenses. (You can use Turbotax calculator to figure this out). My wife and I only spent about $60,000 a year for many years and still had a lot of fun and vacations.
Here I show how I lived a great life only spending $30,000 a year.
Here I show how we had a great life spending $60,000 in 2019!
Here I show how we had a great life spending $60,000 in 2020!