Everyone wants to retire someday. Most people aim to have around one million dollars when they retire. As we progress into the future you will need more and more money to retire due to inflation. Here is an easy way to retire with one million dollars if you start young enough.
Compounding interest is the secret ingredient to retiring with more money. Once you understand this concept you will understand why it is so valuable to start investing early. Compounding interest is present in any stock and more present in stocks that pay dividends.
Compounding interest is making money on money that you have already made. This is why it is an exponentially increasing amount. Let me demonstrate a simple concept to show how it works. Let’s say you invest $5,000 in a stock that gives you a 10% return per year.
Initial Investment: $5000
Yearly Return: $500
You have made 500 dollars on your $5500. The next year your beginning principal starts at $5,500.
Initial Investment: $5500
Yearly Return: $550
You have already made 50 more dollars this year by doing nothing. If you span this out over a long enough period of time, especially with dividends evolved, you will accumulate a ton of money.
This article is about the easiest way to accumulate $1,000,000 in your retirement account. For our example we are going to use low estimates to ensure that you can make it this sum of money by the time you retire. The point of this article is to show that by starting early you can invest less and have more later. We are going to start investing at the age of 20 years old.
Using this calculator we can calculate what you must do to earn $1,000,000 before you reach the age of 65. There are three main fundamental concepts of earning more money for retirement. You must start earlier, put more money in each month or retire later. There are no other ways to get more out of your retirement fund.
I used a standard average yearly return of 10% and a modest dividend yield of 2%. I started at age 20 and reinvested all of my dividends. Over the next 40 years I only have to invest $61 dollars a month to reach a grand total of $1,002,423.76 in 40 years. Anyone who is employed can afford to put away $61 dollars a month into a retirement fund.
Hopefully this article has convinced you that you too can have over a million dollars when you retire. You just need to remember to start as young as you can and put away as much as you can. If you aim to put between 10% and 25% of your income towards retirement, you will be just fine when you reach 65.
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