In this episode, we discuss how much you need to save each year to become a millionaire. We discuss why a million dollars is an important goal (or not) and how what assumptions are reasonable.

Here is the transcript for this episode:

 In this episode we’re gonna talk about how to become a millionaire
This is all-in-one financial with Bill and Jason
We discuss financial planning issues of investments retirement planning taxes insurance in the state planning
We are a fiduciary fee-only financial planning firm
and we also specialize in
Socially responsible investing and we work with clients all over the US and we’re based here in Tucson, Arizona
Alright, thanks for joining us. We are gonna discuss how to become a millionaire in the two big variables for becoming a millionaire are
well time and
return on investment
And I guess how much you’re investing each month
Absolutely. So part of this was because of a video that I saw where someone was talking about
Becoming a millionaire by investing $100 a month
And so I heard that and I thought that doesn’t quite sound right
So I dug into the numbers that they were talking about they were looking at
investing over a period of
around 35 years
And they were talking about getting an average return of 12% by investing in a growth stock mutual fund
That’s just not very realistic. So
12% is not a common return and if you’re giving them tonight for a long term if you’re talking about
Something especially as you’re getting closer to retirement. You wouldn’t want to be a hundred percent in growth stocks. That would not make sense
Because if you need to start drawing on it and the markets down you’re gonna be in a big big problem there
So I’m gonna have trouble with that so
We just kinda want to break down some different ways where you can actually retire a millionaire
And what it would take to get there
So I think a more realistic return to count on would be more like 7% 8% for a diversified portfolio
Average long-term return and
Sure, some years are gonna be a lot higher some years could be negative but long-term return that would make more sense
So how much would you have to contribute for what period of time to get to a million dollars, right?
So we have here if if you’re contributing for 40 years
So let’s say you start when you’re 25, you’re done when you’re 65
You’d be contributing steadily five thousand dollars four thousand seven hundred dollars per year
And that’s that’s pretty reasonable for a lot of folks. You know, that that’s not
more than most can afford so, you know it’s attainable for
kind of your average America you can of max out your Roth IRA or
traditional IRA for forty years
the thing that makes it a little
Different is your earnings usually go up with time
So it might be more of us struggle in the beginning but you might be able to do a lot more later, but the money
Whatever five thousand a year 30 years of contributing would be ten thousand dollars per year
Twenty years of contributing twenty two thousand year at 7% return
Annual return and ten years of contributing you’re contributing 63 thousand a year
So don’t wait to the very end obviously to start saving for retirement
But you know, even if you only have 30 years, let’s say before you plan to retire
it’s still not unreasonable and you know, like bill said
Typically, you’re gonna be making more money closer to the end of your career. So it might be a little more realistic
So you can still you know retire a millionaire, even if you don’t start saving until you know, maybe you’re in your mid-30s
I think another thing we’re saying 7% return 8% returns realistic for a portfolio if we take out
Inflation, so if we want to be a millionaire in today’s dollars, not in four dollars and 40 years
Then we really should reduce that return on investment to the real return. What are you getting above inflation?
and if we ran those same numbers, but
Considering a 4% return on vestment. So you’ll be a millionaire in today’s dollars, which could be a
Lot more than a million dollars in future dollars
Then for 40 years of savings you’d need to put in ten thousand a year for 30 years of contributing
It’s seventeen thousand a year for
20 years of contributing. It’s 31 thousand a year in ten years of 74 thousand a year
I mean that 10 years is really a small window to get to a million dollars, right?
Yeah, it’s it’s not not the best way to plan for your retirement is wait till the very end
So, yeah, for sure and of course, you know the earlier you start saving the better
And so the other question I suppose would be why would we come up with a million dollars? You know, why why that number?
It’s nice and round. Yes
I mean the main thing, you know to to a lot of people that represents wealth that represents financial security. Yeah
Do you want to talk a little bit about the four percent? Rule? Yeah. Yeah
I mean there’s a standard rule that if you invest in a diversified portfolio
That your money can last for thirty five years
If you’re taking out four percent of it per year and that’ll eat away at the principle. You’ll end up with nothing at the end
But it’ll keep with inflation and give you four percent of that per year. So in addition to Social Security or
Anything else this would give you an additional forty thousand dollars per year
From each sixty five to a hundred, you know a thirty five year window or age sixty to ninety five, whatever
Whenever you wanted to start retiring, yeah, and of course everybody is playing for retirements gonna be a little bit different some people
you know spend a lot more retirement than others some people, you know, they don’t travel a whole lot or they
You know have their home paid for and they’re not really
having to put out that much so you really have to kind of take a look at your
Personal financial situation what your goals are and figure out what number actually makes the most sense for you in the long run sure life
Expectancy would change depending on family history your health conditions
If you’ve spouse or other income that you want to consider
Taking care of kids there. Also. It may not be an even line that you want to 4% per year forever
Maybe 4% for a while than other income social security kicks in and you need lasts or so
This is a real rough
guide but
40,000 per person. That’s a that’s a nice chunk of money
Yeah, definitely and you know
We think the best way to create that
Financial plan to make sure that you can retire with the amount of money that you’re going to need to live out your goals
Would be to start with a financial planner
specifically somebody who works on a fiduciary basis, so they’re only making
recommendations that are on your or in your best interest it also
Fee only so that’s often confer are confused with fee based
Sophie only means that clients only being or rather the advisors only being compensated by the client
They’re not getting a commission for selling a product which is often the case with a fee based advisor
So definitely, that’s a great place to start. Yeah, you’re right
and if you want to meet your goals make a plan because yeah, like we said the earlier you start the better, so
You know get a plan in place that’s realistic and work towards those goals
Yep, a goal without a plan is just a wish that’s right. Yeah
All right, excellent. And so if you want more information about that, you can find us at a IO financial calm
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Thanks. Take care