3 ways to turn $100,000 into $1 million for retirement savings

$100,000 is a big step on the road to a fully funded retirement. Going from $0 to $100,000 can be more difficult than going from $100,000 to $1 million. Once you have $100,000, you can let your investments do most of the work to build your savings and grow your portfolio.

Whether $1 million is the end goal or just the next step before retirement, there are several ways to get there. Here are three ways to turn $100,000 into $1 million for retirement savings.

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1. Invest in the financial markets

Investing your money doesn’t have to be difficult. You can keep it simple by investing in a general index fund. It will cost very little in fees or research time. All you need to do is choose a good index fund and make your money grow.

Investing in an index fund means that your money will grow as the stock market moves. The last decade has been extremely favorable for investors, but the future could present significantly lower returns. Analysts are expecting long-term nominal returns close to 7.5% compared to the average double-digit returns we have seen recently. Yet $100,000 will grow to $1 million in about 32 years, compounded at 7.5% per year.

You can get better returns by doing your research and picking individual stocks. If you can outperform the market by even one percentage point on average, you’ll accelerate your timeline by almost four years. It’s easier said than done, though, and it takes a lot more work than putting your money in an index fund.

2. Invest in rental property

If you’re willing to work harder and take a little more risk, real estate investing can be a great path to hitting $1 million. One of the great benefits of investing in rental property is the ability to leverage your funds. When you buy a rental property, you can usually get a loan for at least 75% of the value of the property. So your $100,000 should be able to buy you a $400,000 property.

If you find a good property that generates cash flow each month, you can pay off the mortgage with the money generated from the rent. If you take out a standard 30-year mortgage, you will hopefully have at least $400,000 in home equity after 30 years. More likely, the value of the property will have increased significantly over those 30 years. Home prices have increased nearly 3.7 times over the past 30 years. Thus, your equity may be over $1 million by the time the mortgage is paid off.

Additionally, you should be able to generate excess cash flow from the rental property. You can accumulate this as cash savings or use it for additional investment opportunities (real estate or elsewhere).

Investing in rental property is a lot more work than investing in the financial markets. It requires managing a property or a portfolio of properties, maintaining them and keeping them rented to good tenants. It is a kind of equal parts business and investment.

3. Keep saving

You had to save some of your paychecks to reach $100,000 in savings. If you want to accelerate your way to $1 million, you need to keep saving.

If you save an extra $1,000 a month and put it into an index fund on top of your initial savings of $100,000, you’ll end up with about $520,000 more after 20 years. Meanwhile, your initial $100,000 would have grown to around $425,000 based on a compound average growth rate of 7.5% per year. Saving more each month will net you $1 million more than a decade earlier than if you had added nothing.

Even if you can’t afford to save an extra $1,000 a month, adding a little to your savings each year will help. The government encourages saving with specialized retirement accounts like IRAs and 401(k)s. These accounts have additional tax benefits that could allow you to save more for your retirement.

You have lots of choices about how to invest your money to help it grow, but the best way to ensure you reach $1 million in retirement is to save and invest regularly each year.

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