How Investing Just $20 a Day Could Make You a Millionaire by Retirement

Key Points

• If you have enough time and you can be diligent, it's quite possible to become a millionaire.

• Low-fee index funds can help you get there.

• Be sure to use IRAs and/or 401(k)s if you can, as well, for tax-advantaged growth.

• The $23,760 Social Security bonus most retirees completely overlook ›

So you'd like to be a millionaire. Who wouldn't? It would be especially good to be a millionaire by the time you retire -- if not a multimillionaire. For many people, this is far more achievable than they may think -- though it will take time and diligence.

Read on to learn how you might be able to become a millionaire by retirement. (And note that even if you can't quite get there, you may still be able to significantly strengthen your financial condition.)

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

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Becoming a millionaire by retirement

There's no single formula that everyone can use to become a millionaire by retirement, because there are several factors to consider for each of us. For starters, how far away is retirement? In general, it will be far easier for a 35-year-old than a 60-year-old.

Another important factor is how much you've got socked away already. If you're halfway there, with a $500,000 nest egg, you'll have less work to do than someone who's starting with zero. And by the way -- if you are starting with zero or with very little, don't feel too bad, because you're not alone. At all. Check out the table below, featuring data from the Employee Benefit Research Institute's "2024 Retirement Confidence Survey":

Source: "2024 Retirement Confidence Survey."
*Excluding the value of a primary home.

Below is another eye-opening table, showing how you can amass a million dollars, or some other amount, over time. It shows how money grows, using an average annual growth rate of 8% -- which is a bit conservative, given that the stock market has averaged annual returns of close to 10% over many decades. Yes, you might average 12% or more over your investing period, but don't count on that. Hope for the best but prepare for less-than-ideal results.

Source: Calculations by author.

If you invest $7,500 annually, that's about $20.55 per day -- though, of course, you'd likely be adding money every few weeks or months, not every day. If you're able to swing $15,000 per year, that would cost you around $41 per day.

Note, too, that most people won't be socking away the same sum each year. Most of us experience fat years and lean years, so sock away a lot when you can and less when you must. Remember that the dollars you invest earliest are the most potent, as they have the most time to grow.

How to invest to become a millionaire by retirement

Your next question might be: How should I invest my money in order to become a millionaire? Well, you could focus on growth stocks, which can grow much faster than the overall market, but plenty of them are overvalued when you invest and some will flame out. So if you take this route, we recommend investing in at least 25 companies and aiming to hold for at least five years.

Alternatively, you can take on less risk and still enjoy solid returns by just sticking with one or more simple, low-fee index funds.

• Vanguard S&P 500 ETF (NYSEMKT: VOO)
• Vanguard Total Stock Market ETF (NYSEMKT: VTI)
• Vanguard Total World Stock ETF (NYSEMKT: VT)

There are other great index funds, too.

And as you invest, be sure to make good use of tax-advantaged retirement accounts such as IRAs and 401(k)s. They can help your money grow more efficiently.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.