A Million Dollar Journey | Living Off of Dividends

Posted on February 20, 2021

Depending on where you sit financially, the idea of taking a million dollar journey might seem out of reach. How can the average person get enough money to retire and live comfortably?

When we think of making a million dollars, it's usually in terms of huge promotions at work or through the profits of a business venture. In most cases, though, working your way up to seven figures is achieved a different way. 

The most reliable route is through the process of investing. Before you turn your head away from the idea of investing, give us a few minutes to explain how turning your current savings into a million or more isn't out of the question. 

Let's get started:

How to Take the Million Dollar Journey 

It seems as though investing requires a lot of time, money, and knowledge to get started with. People imagine that you need thousands of dollars saved to even think about opening an investment account.

This just simply isn't the case, especially when you're investing for your long-term future

Instead, you can get started investing with as little money as you have in your pocket at this instant. To get started, you need only to sign up for an online stock brokerage account for free and link your bank account to it. 

These platforms allow you to invest in a single penny stock or contribute tens of thousands of dollars at a time. There typically aren't barriers to entry, meaning you can start putting money toward your retirement fund regardless of how your finances look at the moment. 

There are ways to almost certainly allow your money to grow to one million dollars before you hit retirement age. 

What Should Your Investment Goal Be?

Naturally, everyone has a different idea of what they'd like to end up with at the end of their career. 

That said, there's a pretty surefire formula that you can use to establish a good standard of living by the time you retire. The idea is to accrue enough value in your investments to be able to live off of their interest at the same standard of living that you currently have.  

Let's say that you retire with $1,000,000 in your investment account. Let's also say that the account is scheduled to grow at the average rate of the market, which is around 7% over time. 

In that situation, your interest will earn you roughly $70,000 per year. If you live off of $40,000 per year, you can contribute $30,000 to your investments annually. 

We'll talk about how to get to the million-dollar mark next but keep the example above in mind. Having that significant of an amount in your account and living off of less than each year's interest allows you to keep generating money throughout retirement. 

Instead of a stagnant account which you pull from every year and deplete, investment accounts can get much larger even if you're living off of your interest. 

Understanding Compound Interest

How can you turn your savings into enough money to set yourself up for a comfortable retirement?

The answer to that question is a resounding "compound interest!"

The interest you gain from an investment is a result of the changing value of that investment. For example, you might buy 10000 shares of a stock that's worth $1 per share. That business makes some savvy decisions over the course of the year, the market shifts, and the value of that stock might soar to $1.50.

Your initial investment is then worth $15,000, with the additional $5,000 being your interest. Intelligent investments that grow over the long-term continue this process over decades, leaving you with exponentially more than you initially invested. 

If you want to see just how much you'd need to contribute to an investment account for it to allow you to retire, take a look at an interest calculator and factor in your age, annual or monthly contributions, and the amount you'd like to retire off of. 

45 Years of Growth

For the purposes of our example, though, let's imagine that you're about to turn 20 years old and you've got $10,000 of life savings

You contribute all of your savings to your retirement account. You also take 10% of your income and put it into that account. If you were making $40,000 per year, that would come out to just under $334 each month or $4,000 per year. 

If you make that contribution for the next 45 years, you will wind up depositing $190,000 dollars in total into your investment account. That's quite a bit of money. 

The interest from those contributions, though, will send you far beyond that bracket. If you contribute $190,000 over 45 years with an interest rate of 7%, you'll end up with close to $1.4 million.

The frequency of your contributions can be different; some people might contribute a little each week or month, while others might contribute annually. 

Even if you're older than 20 when you start your retirement fund, it's totally possible to make contributions that will get you to the million-dollar mark. Small changes to regular contributions make a huge difference when you think in terms of decades. 

For example, an additional $5 to your monthly contribution over 45 years will amount to an extra $14,445 dollars. That's additional money that will gain interest and get you to one million dollars quicker. 

So, if you're a little late to the game and you're worried about saving enough to retire, know that it's possible.  

Actually Getting to That Point

It's easy to get lost in nice dreams of cushy retirement accounts, but the reality is that there's a lot of discipline involved in getting to that point. 

First, you have to be consistent with how much money you put into your savings account each week, month, or year. You also have to be ready for little hiccups along the way. There might be a month or two down the road where you really need to dig into that account to keep yourself afloat.  

Additionally, you should prepare for life changes, losing a job, having children, and all of those important things that take precedent over savings sometimes. 

When you're able to, though, it's important to be rigid with yourself when it comes to saving. The idea of using the money for something 45 years down the road is hard to conceptualize. That amount of time makes it really easy to say, "Hey, I might have a pool installed with my savings."

It's also easy to just shrug off saving for retirement until later. When you have a clear look at the numbers, though, you'll see that the only way to take the million dollar journey through investing is to start contributing now and continuing to do so. 

Saving and Investing Strategies

As you start to scope out investment ideas, you'll find that there are a lot of different options. 

While it's possible to do your own research and invest in the stocks you choose, you can also work with professionals who will manage your accounts for you. Working with a firm that manages your funds is typically a better way to reduce risk and take your mind off of your investments. 

As you're getting started, you might not have enough money for firms to justify working with you. They typically work on commission, and it only makes sense for some companies to manage the funds of those with tens of thousands of dollars to work with. 

If you're starting out on your own, it's important to have a general idea of how to arrange your portfolio. 

A smart portfolio includes shares of companies from different industries that display different levels of risk. Diversifying the types of businesses you invest in will help cushion you if one industry experiences an economic shift. 

For example, you would lose a lot of money if you invested only in tire companies and the world shifted to flying cars. That example is a little far-fetched, but the idea is that you have a spread of shares from different industries to protect yourself from industry-specific issues. 

Additionally, investing in mostly "safe" stocks is intelligent if you're looking for long-term growth. Building your portfolio up with 70% low-risk stocks, 25% medium-risk stocks, and 5% high-risk stocks should keep you at a regular growth rate. 

There are different ways to arrange those numbers, but the idea is that you can play around with a few high-risk companies, but the majority of your wealth should remain where it's able to grow over time. 

How Much Will My Retirement Fund Grow?

After retirement, you might be wondering how much your bank account will continue to grow. 

Let's imagine that you retire at 65 and live for another 35 years. If the market grows at a steady 7%, your 1.4 million can turn into as much as 14 million depending on how much you withdraw yearly.

Interested in Learning More?

There's a lot to learn about the process of the million dollar journey. We're here to help you explore ideas and resources that will aid you in achieving your financial goal. 

Explore our site for more ideas on how to manage your finances with loans, credit cards, insurance, and much more. 

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