Saving for retirement isn’t easy, especially as costs continue to rise. While Social Security benefits can help to an extent, your monthly checks were never designed to be a primary source of income.
It’s possible, then, that you may need to save more than you think to retire comfortably. Fortunately, retiring a millionaire may be within reach, even if you’re not wealthy. With the right strategy, you can accumulate $1 million or more on an average salary.
Choosing the right investments
The first step is to decide where to invest. Everyone will have different investing styles and preferences, and there’s no wrong way to do it. Some people prefer buying individual stocks, for example, while others prefer passive investments like mutual funds or exchange-traded funds (ETFs).
ETFs, in particular, can be a smart option for many investors. When you invest in ETFs, you’re gaining access to hundreds or even thousands of stocks within a single investment. ETFs require much less research than buying individual stocks, and they make great “set it and forget it” types of investments — all you need to do is invest a little each month and then give your savings time to grow.
One of the most popular types of ETF is the S&P 500 ETF. This fund follows the performance of the S&P 500, and it includes the same stocks as the index itself.
S&P 500 ETFs are one of the safer investment options, as the S&P 500 itself has a long history of earning positive returns over time. Although the market does experience volatility and downturns in the short term, over decades, it has historically always recovered.
By investing in an S&P 500 ETF, there’s a strong chance your investments will earn positive returns over time, too.
This is especially beneficial if you’re concerned about a market downturn, because the S&P 500 has managed to recover from every single crash it’s ever experienced. If the market does take a turn for the worse, it’s likely your S&P 500 ETFs will bounce back eventually.
Reaching millionaire status with S&P 500 ETFs
Historically, the S&P 500 has earned an average rate of return of around 10% per year. That means despite the ups and downs in the short term, its annual returns have historically averaged out to around 10% per year.
Accumulating at least $1 million may seem out of reach, but it’s possible with an S&P 500 ETF.
The average U.S. worker earns wages of around $52,000 per year, according to 2021 data from the Bureau of Labor Statistics. If you were to set aside 10% of your salary to invest for retirement, that would come out to around $433 per month.
Let’s say you’re investing $433 per month in an S&P 500 ETF earning an average rate of return of around 10% per year. At that rate, here’s how much you could earn over time.
Number of Years
It may be tough to wait decades to see a significant amount in savings, but keep in mind that S&P 500 ETFs are passive investments. They don’t require any effort on your part besides investing consistently.
Becoming a retirement millionaire takes effort, but it is possible — even if you can’t afford to invest thousands of dollars per month. By investing consistently and keeping your money in the stock market for as long as possible, you can earn more than you might think.
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