What You Need to Know to Grow $500,000 into $3 Million for Retirement
With Millennials pushing 40, it’s finally time to take retirement planning seriously.
While saving for retirement is not the sexiest thing to discuss, it is extremely important to consider. If you are reaching for hair dye, grew up on Nickelodeon cartoons, or know who Lindsay Lohan is, it’s time. Especially, if you want to maintain your current lifestyle. You definitely want to figure this out before 50+.
Planning early and taking effective action today, help to avoid even more challenging times tomorrow.
Currently, money is tight for many Americans. With inflation and prices high, a majority of households are saving less and spending more on credit. All of this is a great recipe for long-term debt and the coveted domestic destination trip to your kids’ basement. This is why my household has been pushing not to be average anymore. The first part was scaling to the first $100,000. Now that we hit what Andy Hill from Marriage Kids and Money chronicles as Coast FIRE; we want to do more with our wealth. It’s time to go Generational FIRE with no hope of not being broke.
Admittedly turning our current total portfolio of $500,000 into $3 million seems impossible but it’s just improbable. If it’s improbable then there is a chance. Here are some steps that we are using to push our portfolio to the MAX.
As a bonus for long-time readers, since people ask what our holdings are, click here for TNFG’s real-time quarterly investment tracker on Google Sheets. I’ll update it periodically.
Table of Contents
Take Advantage of Down Stock Market
You are likely asking yourself why $3 million. Well CBS news reported it, “Investors say they’ll need at least $3 million.”
So what’s the plan to make this happen? The easiest way to reach $3 million in savings is to not just save, but invest. While the “cocaine bear” stock market is trending down, tough times don’t last forever. The stock market is a wealth-building powerhouse that can help your money grow exponentially.
Historically, the S&P 500 has earned an average rate of return of around 8%-10% per year. In other words, all the annual returns have averaged out to roughly 9% per year. Comparatively, bonds and other “safer” investments may only earn average returns of around 3% to 4% per year. With local bank savings rates hovering around 0.01%.
While that may not seem like a major difference, it will have an enormous impact on your savings. Simply put, investing beats saving.
For example, say you currently COAST FIRE and have $500,000 invested in the stock market. If you simply let your money sit without making any additional contributions, it would take around 23 years to grow into $3 million if you’re earning an 8% average annual return. With a 3% average annual return on Treasury Bonds, it would take 60 years. But if you left it all in a savings account at your local bank, netting 0.01%, it would take you 17,918 years. No, kidding that number is in years!
Savings aren’t cutting it, especially with escalating inflation. Here is what we do:
- BUY while stocks in great companies are LOW
- Use the power of Dollar Cost Averaging and Compounding to grow wealth exponentially
- Max out on our 401ks, IRAs, and HSA – tax-savings and investing north of $5,000 per month.
Start investing early and let your money work for you
Time is your most valuable resource when it comes to investing for retirement. Thanks to compound earnings, the more time your investments have to grow, the more you’ll earn.
| Years to Invest | Monthly Investments | Total Contributions | Total Interest Earned |
| 20 | $1,177 | $282,400 | $2.21M |
| 15 | $4,188 | $753,851 | $1.75M |
| 10 | $10,662 | $1,279,475 | $1.22M |
| 5 | $31,056 | $1,863,333 | $636,667 |
Source: Author’s calculations via Calculator.net,
rounded to the nearest dollar
Say, for instance, you have $500,000 saved for retirement and want to earn a total of $3 million.
If you’re earning an 8% average annual return, here’s how much you’d need to invest each month to reach the goal, depending on how many years you have to invest (see table #1).
Every year your wait is costly. Inversely, every early investment is powerful. With 20 years until retirement, your contributions are kicking out nearly 8x interest earned. Versus less than 1x if you waited until you had ten years.
Putting off investing for even a few years, can make the journey unattainable. If you wait until there are five years left to retire, you are looking at throwing the kitchen sink just to catch up. Even if you can’t afford to invest a lot today, it’s better to get started. Don’t let the perfect be the enemy of the wealthy. As a bonus, when you start early, your money ends up working harder than you.
If you want to learn how we invested up to $500,000, check out the net/max financial plan on the resource page.
Invest the Right Way. More money and fewer mistakes to reach your retirement goals
Turns out, all investments are not created equal. In 2020-2022, we witnessed a proliferation of cryptocurrency and NFTS. A majority of Americans lost a lot of money on those Wall Street bets. Money was too loose and too easy. Putting your faith, time, effort, and money in the wrong places, can set you back for decades.
It’s always better to invest in the long term. Wealth calcifies over time. You need your efforts to be sustainable before they go exponential.
Short-term risks and “opportunities” always promise to make you rich overnight without any consequences but they rarely pay off.
Understand your risk profile and risk capacity as you age. Learn how to calculate your investment risk profile with SmartAsset.com.
If you don’t know everything and most of us don’t start investing in an index ETF pegged to the S&P 500. It’s smart, diversified, and easier to understand versus guessing a winning stock day to day.
Learn to earn for the long term and stick with it toward your retirement goals. For the TNFG household, we double down on what works like the retirement accounts and then we add an after-tax portfolio. The latter is part of our early retirement passive dividend income strategy.
Being risk-averse and debt free will not cut it. You have to get comfortable with investing the right way.
Avoid withdrawing your money early, the penalties are tax heavy!
Most people make one catastrophic error when it comes to savings and investing. They take out money on any given Sunday. While it’s understandable that emergencies come up. It’s better to let your money simmer separately from your day-to-day spending.
This is why you need an emergency financial savings plan so you don’t have to tap money from your long-term goals. If you’re investing through an employer-sponsored plan 401k, 403b, 457b, or even a traditional IRA, you will be hit with a penalty and income taxes if you withdraw your savings before age 59 1/2.
Withdrawing your money will make it harder to build a $3 million nest egg. For instance, say you have $500,000, but you withdraw $50,000 to cover an emergency.
Assuming you’re earning an 8% average annual return and not making any additional contributions, here’s how that withdrawal will affect your total savings over time (see table #2).
| Years | Total Savings W/out Withdrawal | Total Savings W/Withdrawal | Diff |
| 0 (Today) | $500,000 | $450,000 | $50,000 |
| 5 | $734,664 | $661,198 | $73,466 |
| 10 | $1,079,463 | $971,516 | $107,947 |
| 15 | $1,586,085 | $1,427,476 | $158,609 |
| 20 | $2,330,479 | $2,097,431 | $233,048 |
| 30 | $5,031,328 | $4,528,196 | $503,132 |
Source: Author’s calculations via Calculator.net
In other words, that $50,000 withdrawal could ultimately cost you over $200,000 in lost potential earnings over 20 years.
Even more so, as time goes on. That $50,000 emergency is worth more than $500,000.
Most people do repeated withdrawals for home repairs, new cars, and other medical emergencies. Until their savings are dried up by 60.
It happens fairly quickly, like rolling down a steep hill. Just a casual warning, draft a solid financial plan that doesn’t force you to pull out with expensive fees, taxes, and penalties. Additionally, don’t commit to massive expenses at the start of retirement ie new homes, cars, or repairs. They do way more damage to your savings and livelihood.
Check out my acid emergency plan for details.
The Multiplying Effect of $3 million in Retirement Savings
Saving $3 million for retirement won’t be easy. It’s definitely going to be nerve-racking especially if you didn’t come from wealth. However, it’s not impossible to do. Find a great investment strategy and stick with it.
By investing early and consistently, you can give your retirement investments plenty of runways to soar above the average. If you stuck around through this entire post, thank you. As a bonus, you are on your way to building generational wealth.
Even with the 5% withdrawal, you will be looking at $150,000 per year for the rest of your life to spend on yourself, your family, and your community. By the way, that’s a whopping $150,000 without touching the principal that’s still growing at 8%.
Do the math, you are still up 3% or +$90,000 on average annually to add to your $3 million. With all that cash, what will you do in retirement?
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