The average worker believes they’ll need approximately $1.9 million to retire comfortably, according to a 2021 survey from Schwab Retirement Plan Services.
Retiring with nearly $2 million in savings isn’t easy, but it is possible. In fact, even if you’re not currently wealthy, you may be able to retire a millionaire with the right investing strategy.
Investing in the stock market is one of the best ways to build wealth and save for retirement. But is the S&P 500 enough to make you a millionaire? Here’s how far this investment can get you.
Why invest in S&P 500 ETFs?
An S&P 500 ETF is an investment that mimics the S&P 500 index itself. It includes the same stocks as the index, and it’s designed to mirror its performance over time.
There are plenty of advantages to investing in S&P 500 ETFs. For one, you’ll have an instantly diversified portfolio. Each fund contains roughly 500 stocks from the largest and most successful companies in the U.S. By investing in just one ETF, you’ll have a stake in hundreds of the strongest organizations in the country.
S&P 500 ETFs are also very likely to earn positive returns over the long run. While they’re not immune to stock market volatility and can experience short-term dips, the S&P 500 has historically bounced back from every downturn it’s ever faced.
Again, this doesn’t mean your portfolio will never take a tumble if you buy S&P 500 ETFs. However, by holding your investments for decades, you’re very likely to earn positive average returns over time.
Can you retire a millionaire with S&P 500 ETFs?
One of the best things about S&P 500 ETFs is that they’re passive investments, and you can supercharge your savings by simply leaving your money alone.
Historically, the S&P 500 itself has earned average returns of around 10% per year. Some years it earns higher-than-average returns, and other years it experiences lower returns or even losses. But over the course of decades, those highs and lows average out to roughly 10% per year.
Say you’re earning $50,000 per year and you’re investing 10% of your salary in S&P 500 ETFs. That comes out to roughly $417 per month. If you’re earning an average rate of return of 10% per year, here’s approximately how much money you’d accumulate over time:
|Number of Years||Total Savings When Investing 10% of Your Income|
Most experts recommend setting aside at least 10% to 15% of your income toward retirement savings. In the previous scenario, say you were investing 15% of your salary instead of 10%. That works out to around $625 per month. Here’s what your total savings would look like over time in this scenario, all other factors remaining the same.
|Number of Years||Total Savings When Investing 15% of Your Income|
Of course, you don’t need to invest solely in S&P 500 ETFs to build a healthy retirement fund. If you have access to a 401(k) with employer matching contributions, for example, it’s wise to invest a portion of your money there to earn that full match. By investing at least a little cash each month in S&P 500 ETFs, though, you can maximize your long-term earning potential.
You don’t need to be rich to retire a multimillionaire, but you do need the right investing strategy. S&P 500 ETFs can be a fantastic addition to your portfolio, and by investing consistently for as long as possible, you can make a lot of money and enjoy a more financially secure retirement.