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Do You Want to Be a Millionaire?

Apr 29, 2016 3 min read

Key Takeaways

  • Time's on your side (the sooner you start…).
  • Take baby steps up the contribution ladder.
  • Let your time frame guide your risk-friendilness.


A $1 million retirement nest egg might sound unattainable to many. But you, too, could join the millionaire’s club — even on a modest income.



When you’re young, you may not have a large salary or a fat savings account, but you’ve got something even more valuable: time. Time, for one, allows compounding to work its magic.

What is compounding? Well, as you earn returns on your investments, those returns then have the potential to earn greater returns and so on. The earlier you start, the more time your money has to compound — and the more likely you are to ultimately reach your $1 million goal.

Ready to get working on your first million?


No time like now

It’s impossible to overstate the importance of early saving and investing. When you start early, you have to invest much less to potentially obtain the same nest egg you would if you started at an older age.

But it can be tricky to carve out the money for saving when you’re first starting out. Between student loans, rent and groceries, there may not be much left in your "paycheck".

Fortunately, you don’t have to do it all by yourself. These are some of the ways that can make saving a little less painful.

  • Pre-tax. You’ll likely miss the savings coming out of your "paycheck" a lot less when the money comes out before it’s taxed. Most employer retirement plans are funded pre-tax, which can really boost the incentive for saving.
  • Company match. You employer might offer a match on your contribution, perhaps 50 cents for every dollar you invest up to a certain amount. If your goal is to squirrel away $3,000 in your retirement fund this year and your employer offered the match, your employer might foot the bill for $1,000 of it. Check with your HR department or the employee handbook to find out how much if any your company matches.
  • A little at a time. Of course you don’t have to fund the entire $1 million nest egg all at once. The task is much more manageable when you work on it over years. The more you save, the faster you’ll reach your goal. You can invest up to a maximum of $18,000 a year in a 401(k) in 2016. While it may be tough to put away that much, try to increase your contribution every year—perhaps after a raise.


What it takes

How you invest will often depend on your level of risk tolerance. Generally, the higher the potential for gains, the more risk an investment involves. How do you feel about risk? Will you be able to ride out periodic and inevitable investing declines, or will you want to duck for cover?

If you can stomach a lot of risk, your portfolio can be more aggressive. Although past performance is not indicative of future results, growth-oriented, stock portfolios have been shown to produce higher returns over the long term, and could be suitable for investors with high-risk tolerance.

And, again, the more time you have, the less you could have to put away each month to reach your goals.

Here’s a hypothetical example: Emily is 25. By saving $420 a month, her nest egg will grow to $1 million by the time she is 65, assuming a 7% average annual return on her investments.

Her friend Elliot, on the other hand, decides to wait five years before investing. He’ll need to put aside $607 a month assuming a 7% annual rate of return to have the same portfolio at age 65. In the end, Emily will have paid $89,000 less for her $1 million nest egg.

Just five short years can make quite a difference. That's quite an incentive to start saving at as young an age as possible, isn't it?


What you can do next

Achieving a seven-figure nest egg can be a matter of time, tempo and temperament. The key: Make a plan—and stick to it.



  • Keep in mind, the compounding concept in the above examples is hypothetical and for illustrative purposes only and is not intended to represent performance of any specific investment, which may fluctuate. No taxes are considered in the calculations; generally withdrawals are taxable at ordinary rates. It is possible to lose money by investing in securities.
  • Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.
  • Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.


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