4 min read
Question: How long does it take to save one million dollars?
Answer: Depends on how much you save each year and what type of return you get on your investments.
For example, if you save $10,000 every year and earn a 7% annual return on your investments, you can save $1 million in just over 30 years.
To keep things simple, let’s assume you invest all of your savings in the S&P 500, a common stock market index.
While it’s convenient to assume 7% returns each year, actual market returns are much more lumpy and unpredictable. This begs the question: How long has it taken to save $1 million based on actual historical S&P 500 returns?
To answer this question I went back and looked at yearly S&P 500 returns since 1950 to find out just how long it took to save $1 million based on different yearly savings amounts. The results are in the chart below.
The green circles represent the shortest number of years it took to save $1 million, the yellow circles represent the average number of years, and the red circles represent the longest number of years it took. Each row represents different annual savings amounts.
An example of how to interpret this chart: By saving $5,000 each year, the longest time it took historically to save $1 million was 33 years, the average time it took was 28 years, and the shortest time it took was 21 years.
It turns out the 21-year span where you could have saved $1 million through saving $5k yearly was 1979 – 1999:
Conversely, the 33-year span where it took the longest to save $1 million through saving $5k yearly was 1950 – 1982:
The Big Picture
There’s a couple interesting takeaways from this analysis:
1. The more you save each year, the less variability in the time it takes to save $1 million.
Notice that if you only saved $5,000 yearly, you could have gotten lucky and saved $1 million in as few as 21 years. If you weren’t so lucky, it could have taken as long as 33 years. That’s a 12 year difference.
But the more you save per year, the less investment returns influence how long it takes to save $1 million because your savings compose a greater percentage of your net worth. For example, if you were able to save $80k per year you would have saved $1 million between 6 and 12 years historically. That’s only a 6 year difference between the best and worst-case scenario.
2. No matter how much you save each year, investment returns will influence how long it takes you to save $1 million.
In previous posts, I have explained how investment returns don’t influence small portfolios much. For example, if you have $80k invested completely in stocks and experience a 37% crash (equivalent to the worst year ever since 1950), you would lose about $29,000. If you’re able to save $29,000 in that same year, your net worth would remain exactly the same.
However, the larger your net worth grows and the more savings you have invested in stocks, the more investment returns can dramatically slow down or speed up how long it takes you to save $1 million.
A 37% crash would cause a $500,000 portfolio to drop in value by $182,000. That could set you back considerably. Conversely, a 53% gain in one year (the highest one year return since 1950) would cause that same portfolio to grow by $262,000. That could propel you towards $1 million much quicker than you expected.
This is why the more you have invested, the more investment returns become influential.
That’s all for this analysis, thanks for reading 🙂
Technical Note #1: I retrieved annual S&P 500 returns from this page.
Technical Note #2: I realize that $1 million was worth considerably more in 1950 compared to today, but I’m only concerned with the percentage market returns each year (i.e. if we experience the same market returns in the future as we did historically, I want to know how long it will take to save $1 million).
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
Although the bulk of his net worth is invested in index funds, his favorite place to invest in individual stocks is M1 Finance, a site that allows you to build a custom portfolio of stocks for free.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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