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Support for today's episode comes from Square. The easy way for business owners to take payments, book appointments, manage staff and keep everything running in one place. On this show and in my books, I always talk about how important it is to have multiple streams of income. But how do you actually go from hobby to hustle? The answer?
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Square.
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I have seen it so many times in real life. Just this weekend at the Farmer's Market, there was a mom selling banana bread. We love banana bread and I could not resist. In the past, I might have missed out because I never carry cash. But with Square, she was able to take my card. In seconds, I got my delicious treat, she got paid and neither of us had to stress with Square, you can get all the tools to run your business with none of the contracts or complexity. And why wait? Right now you get up to $200 off square hardware at square.com go mnn that's square.com g o m n N as in Money News Network. Run your business smarter with Square. Get started today if you take only one thing away from today's episode. Money Rehabbers Let it be this in my not so humble opinion, Public is the best brokerage for investing in bonds, stocks, ETFs, options and even crypto. You can try it out for yourself and see why I love it so much. @Public.com MoneyRehab Public is legit, the only platform I use to buy bonds. Before public, I used to buy government bonds the hard way. Slow websites, confusing interfaces, website designs straight out of the early 2000s. Just picture where fun goes to die.
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That was it.
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And then I found Public about five years ago and I have not looked back. I can now finally buy bonds without wanting to rip my hair out. Public makes it so easy to buy bonds. Whether you're into Treasuries or corporate bonds, you can browse thousands of options right from your phone. But like I said, public isn't just all about bonds. You can also find stocks and ETFs and they offer offer a high yield cash account with a 4.1% APY which is higher than the national average. They even have retirement accounts. You can now open a traditional or Roth IRA or both right on public. So your future self covered. And for a limited time you can earn a 1% match on all your IRA deposits, IRA transfers and 401k rollovers. If you want an investing experience that's both smart and simple, head to public.com money rehab one more time. Public.com money rehab this is a paid endorsement for Public Investing. Full Disclosures and conditions can be found in the podcast description. I'm Nicole Lapin, the only financial expert. You don't need a dictionary to understand it's time for some money rehab.
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Today we're going to crack the code on the million dollar question. Literally, how much do you need to invest and when to retire with a million bucks in the bank? This is one of top questions I get asked and one of the most commonly searched questions on Google and probably ChatGPT. So today we're going to run the numbers. Whether you're 20 or you're 60, I'm going to show you exactly how much you need to invest each month to retire at 67 with a million dollars in the bank. And this isn't based on magic, but on compound interest, which honestly is pretty magical. We're assuming that you're investing in an ETF that mimics the stock market like Voo or Spy, and assuming a 7% average annual, which is actually a little conservative when you look at the long term performance of the market, but it is a pretty good bet with inflation. Before we break this down by age, you're going to notice something very quickly. The earlier you start, the less aggressive you have to be. Starting early is a financial superpower because of the great, beautiful, glorious, all the adjectives, force of compound interest. Starting early is a financial superpower because of the great beautiful force of compound interest. Compound interest is what happens when your money earns money and then that money earns money and then that money earns even more money. It's the snowball effect. When it comes to debt, compound interest sucks. It is so stressful because what you owe snowballs. But when it comes to investing, compound interest is amazing because what you earn, snowballs. So simply put, the earlier you start, the more time your money has to grow. Even if you invest less, you can end up with more just by giving your money more Runway to compound. So you're going to see just how dramatically your minimum investment is going to have to increase the later you start. But don't worry, I'm not going to just hit you with scary numbers. I'm also going to give you actionable ways to make up for lost time at any age. Okay, let's start with the dream scenario. You are 20 years old and you are thinking ahead. First of all, bravo. Not everyone, myself included, can start that early. To have a million bucks by 67, you have to invest 165 bucks a month into the stock market. That's it. 165 bucks a month, every month from age 20 to 67 at a 7% annual rate of return and you will get to that seven figure goal. This works because you have 47 years of compound interest on your side. Even though your total contributions over those 47 years only adds up to around $93,000, that interest is doing the heavy lifting and adding more than $900,000 to your final balance. That math actually blows my mind. So I'm going to say it again. You have to only put $93,000 over the course of 47 years aside in order to end up with a million dollars. It is insane. You gotta love it. So here's what I would do at 20. Start with a Roth IRA retirement account. It is tax free growth and withdrawal in retirement. So win, win. Then I would set up automatic contributions. Even if you can't do the 165 monthly, decide on what amount you can commit to and set. Now, let's say you don't start in your 20s. Let's say you start when you turn 30. Flirty and thriving. Don't panic. You are 30. You have still got plenty of time to reach a million bucks by 67, you need to contribute $340 monthly. You see the jump there. Starting 10 years later means you now have to invest more than double the monthly amount because compound interest has less time to do its thing. So if I was Getting started at 30, here's what I would do. Max out the 401k match for sure. This is free money from your employer. Don't leave that on the table if you're not already. I'd start using my 3e rule for a spending plan which is putting 70% of what you make toward essentials, 15% toward extras, and 15% towards your end game like retirement savings investing. I'd also put any raises or found money like tax refunds or inheritances for example, into your investment account. Lastly, I'd cut high interest rate debt and redirect those payments into your investments and consider bumping up some side income. The average millionaire has seven streams of income, so if you only have one, I'd start thinking about what you could do to diversify that. A part time freelance gig or consulting gig can get you to that $340 a month target pretty easily. Okay, say you don't do that either. Say you don't get started until 40. At 40 we're getting closer to that retirement age and the pressure starts to build. But don't beat yourself up if you're getting a late let's just get to work. Here's what it takes. A $820 a month contribution. We're now in the serious hustle territory. I'll be honest, but it's still very doable. If I needed to ramp up investing, I'd first revisit my spending plan.
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You may be earning more, but you.
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Are spending more too. That is lifestyle creep and it can steal your investing dollars. Then I wouldn't necessarily downsize my lifestyle, but I'd right size only takes $27 a day to add up to 820 bucks a month. It is pretty easy to lose track of $27 here and there. So I would plug any places where my budget is starting to feel a little leaky. Lastly, automate increases every time you get a raise. Auto increase your investment contribution by 1 to 2%. Now say you don't do that and you are starting at 50 and you're planning on retiring in 17 years. That's not nothing. But the Runway is shorter and the st so we're gonna have to get serious. The monthly contribution that you'll need is 1,920 bucks. I know it is a big number and a big jump from the numbers we've talked about so far. But hey, you're also probably earning more than you did in your 20s and 30s. It is time to go all in. What I would do to hit this number is to take advantage of catch up contributions. If you're 50 or older, the maximum amount you can contribute to your IRA or your 401k goes up in 2025. For example, the 401k limit is 23 grand plus an additional 7500 bucks if you're 50 dol plus. I'd also look for places where there's free money, meaning ways to make money from stuff you already own or things that you already do. For example, you could rent out a room, a garage or even a parking space. That extra thousand dollars a month could go straight to your investments. If the pressure is feeling like too much, you can always plan on doing a retirement soft launch at 67 where you go down to a part time job so you can have more time to earn more money and save for that sweet, sweet hard to launch retirement. So say you have done none of this, that you're 60 years old and you're just starting your money rehab journey. You're 60 and you want to retire at 67 with a million bucks and you're starting with nothing. I'll be honest, this is a tall order Your monthly contributions will need to be $5,700. I know it is steep. You'd need to invest more than the average monthly rent in many US cities. But is it impossible? Not necessarily. Here's what I would do. Max out every retirement account you can 401k, traditional or Roth IR, even HSAs if you qualify. Then I take a look at unused assets like extra cars, storage units, old collectibles, and I'd get them appraised and think about selling. Don't think of this as a fire sale because it is definitely not. This is just you turning your clutter into capital. Personally, I'd also decide to delay retirement to 70. I know this isn't right for everyone, but retiring at 70 would give you three more years of compounding and higher Social Security benefits. All right, let's zoom on that for a sec. If these numbers are feeling intimidating, especially in your 40s, 50s and 60s, know that you have more options than just investing more. Delaying retirement by even a few years can massively improve your financial picture by giving you more time for compound growth. Fewer years or savings need to support you. And like I just alluded to, potentially bigger Social Security checks every year you delay retirement past full retirement age, currently 67, your Social Security benefit increases by 8% until age 70. So even if you can't hit that $5,700 a month number at 60, retiring at 70 instead of 67 might mean you only need to invest 3,700 bucks a month instead. So now that I've successfully given you the bright side, I'm going to tell you something that might be a little intimidating. You might want more than a million dollars when you retire. I say that because, as crazy as it sounds, a million bucks isn't what it used to be. It's not yachts and mega mansions anymore. It's more like health care, housing, and likely some independence. But maybe that's perfect for you. I can't tell you what you need for retirement exactly because I don't know exactly what your goals are. I don't know exactly what you picture when you think about shutting that laptop for good, deleting your LinkedIn and sailing off into the retirement sunset. So what I would definitely do is a little math to determine how much you think you will need in retirement, and then use a compound calculator to see how much money you need to invest monthly if you start today. So I know today I talked about a lot of numbers, but the biggest thing I want you to take away from this episode isn't your number, it's the value of starting today. Your money goes further the earlier you start. So the question really isn't why wait? It's can you afford to wait for today's tip, you can take straight to the bank. At the beginning of this episode, I mentioned that these numbers were based on investing in stocks that mimic the overall market. But as you get closer to retirement, you're definitely going to want to shift your investing priorities to more conservative assets like bonds. One thing you thing you can do to automate that prioritization is to invest in target date funds. These types of funds are specifically designed to simplify retirement investing by automatically adjusting the asset mix, typically shifting from higher risk growth oriented investments like stocks to more conservative options like bonds as the target retirement year approaches.
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It's a really nice option if you.
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Want to set it and forget it. These funds offer built in diversification and rebalancing which makes them a great option for hands off investors. But the downside is that not all target date funds are created equal. Expense ratios, asset allocation strategies and glide paths or the pace at which the fund shifts that risk can vary widely. That means some funds might be too aggressive or too conservative for your actual risk tolerance or retirement goals. So while they're very convenient, they still require some research.
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Money Rehab is a production of Money News Network. I'm your host Nicole Lapin. Money Rehab's Executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagram @moneynews and TikTok Money News Network for exclusive video content. And lastly, thank you. No seriously, thank you. Thank you for listening and for investing in yourself which is the most important investment you can make.