3 Ways to Grow $100,000 Into $1 Million for Retirement Savings

Would you like to retire with $1 million? It’s certainly possible for many people, even if you’re starting out with a modest amount of seed money. The key is getting started as soon as you can and remaining disciplined enough to stick with your plan … even when that’s tough to do. Time and the market’s long-term rising tide should take care of the rest.

To this end, here’s a range of potential investment paths to consider if you’re looking to turn $100,000 worth of savings into a retirement stash of $1 million. Notice they each require a different degree of risk-taking that’s inversely correlated with the amount of time you’ll need to reach your goal. Also note that taxes on any gains achieved during these time frames isn’t being considered.

1. Earn 5% per year for 48 years

You won’t be able to earn an average of 5% per year with the mere money market funds you typically hold at a bank or how you park your idle cash with a broker. But you don’t necessarily have to invest in stocks to achieve this sort of annualized return, either.

There are reasonably safe bonds (or bond funds) dishing out these kinds of interest payments. Or if you’re at least willing to own dividend-paying companies or step into preferred stocks, these can also generate average returns of 5%. Just be sure to reinvest these dividend and interest payments into more of the instrument paying them. 

The downside, of course, is the amount of time needed to turn $100,000 and $1 million at a growth pace of only 5% per year. Only a handful of people have 48 years between the point in time they can amass $100,000 and the point in time when they finally retire. And even if they do happen to have that much time, after adjusting for inflation, know that $100,000 48 years ago is actually closer to $500,000 in today’s dollars. Neither are sums most people started out with in either era.

2. Earn 10% per year for 25 years

If you were hoping for something more realistic, this plan is it. The S&P 500 averages an annual return of around 10% per year. And most investors have 25 years to turn $100,000 worth of accumulated cash into a seven-figure retirement nest egg.

Just bear in mind that the broad market’s average annual gain of 10% is just that — an average. Some years are better, and some worse. Some years are even losers. But don’t sweat it — time will smooth out all the rough edges.

The catch? Achieving this sort of return will require an investment in stocks, though an index-based fund like the SPDR S&P 500 ETF Trust or a more traditional mutual fund would do the trick. Bonds and preferred stocks won’t cut it, though.

The good news is, you don’t have to take crazy risks on high-growth prospects to drive this sort of annual gain. A mix of growth, value, and dividend-paying stocks will do just fine (which is what you’ll get with a broad-based index fund).

3. Earn 15% per year for 17 years

Finally, if you’re in a bit of a hurry and you have the ability to consistently squeeze out market-beating gains, an average annual return of 15% can turn $100,000 into $1 million in just 17 years’ time.

This scenario is admittedly the most attractive, but it’s also the least realistic.

While it may look like it’s possible to outperform the market year in and year out by jumping in and out of the market’s hottest stocks, that’s a rarity even among professional stock pickers. Standard & Poor’s regularly crunches the numbers and consistently finds that in any given year, between half and three-fourths of actively-managed mutual funds available to U.S. investors lag the S&P 500’s performance. If you stretch the time frame out to five, 10, and even 15 years, more than 80% of actively-managed mutual funds regularly underperform the S&P 500.

If the pros armed with countless tools and data devoting a full-time effort to the matter can’t consistently do it, it’s even more unlikely an amateur will be able to so.

Season to taste

But if none of these three models are quite right for you, that’s OK. They’re only meant to be a starting point to illustrate what’s possible, what’s less likely, and what it will take to grow your portfolio to the $1 million mark. You should adjust your plans accordingly now that you have the rough framework.

Whatever tentative plans you end up making for yourself, the two biggest takeaways here are simply that bigger rewards require taking on greater risks, and use time to your advantage.