It is generally accepted amongst our society that a million dollars is a lot of money. When you were a kid you probably imagined yourself making millions schooling the likes of Micheal Jordan in the NBA or winning the Nobel Prize. Then reality struck. You’ve got student loans, car payments, house payments and more all on a decent yet steady 9-5 job. Whether you are a dentist, an engineer, a librarian, whatever it will take more than working your job to make a million. Unless you are the rare few who inherit lots of money, become a dot com billionaire etc. investing is the best way to become a millionaire all the while living your normal every day life.
Millionaire Calculator
ING has a very realistic calculator that can determine what it takes for you to become a millionaire. This is a sweet find because not only can you play with different rates of return, but it also explains how much your million is worth after inflation. Yes, its a bitch. This is a huge wake-up call. Play with the numbers and see where you stand and how long it’ll take for you to retire early 
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The Roth Millionaire
If you were to start investing today with $0 at the age of 23, only in a Roth IRA at the maximum contribution of $5,000 a year with an average return rate of 8% you will have one million dollars by the time you are 59 years old. After inflation however you’re million would only be worth $350,000.
Now lets take a look at the same contribution but in a non-retirement account:
If you invest $0 now and $415 monthly at 8.00%, you’ll be a millionaire in 46 years at age 69. To be a millionaire at age 59, you’ll need to:
- Increase the amount you invest now to $63,138 , or
- Increase your monthly investment to $748 , or
- Achieve a rate of return of 11.56%
When adjusted for inflation, $1 million in 46 years would be equivalent to $261,470 today.
There is a 10 year difference in becoming a millionaire when investing in non-retirement accounts versus a retirement account. Taxes take a huge hit on your returns, which is why tax-deferred accounts like the Roth IRA and 401k are so beneficial.
My Advice
Invest in your Roth to the max. You won’t be able to touch it until you are 59 1/2 anyways, so assuming you have $0 today you will be a millionaire before you can even take money out of it.
In addition to your Roth take advantage of your 401k. Invest up to your employer match because this free money will add up, especially because it is tax deferred. The combination of both the Roth IRA and 401k will make you more than just a millionaire when you retire. Invest beyond the employer match to take advantage of tax-deferred growth by all means. For those of us who need liquid income invest in non-retirement accounts for the time being.
Invest in a taxable account if you want to become a millionaire before you retire. As you can see, you will need to be very aggressive in order for this to happen:
To be a millionaire at age 40 (assuming an 8% return), you’ll need to:
- Increase the amount you invest now to $342,280 , or
- Increase your monthly investment to $2,990 , or
- Achieve a rate of return of 33.60%.
When adjusted for inflation, $1 million in 46 years would be equivalent to $261,470 today.
Not all of us have approximately $3,000 to invest into the stock market a month, and achieving 33% consistently is extremely difficult, defying America’s greatest investor, Warren Buffet himself. This is why banking on your tax-deferred accounts is very important in becoming a millionaire. Using your taxable account as a long term savings is a great way to add value to your existing million bucks.
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