How Long Does It Take to Save $1 Million on an Average Job?

While saving $1 million might seem like an insurmountable goal, it all depends on several factors, including income, savings rate, investment returns, and lifestyle choices. Here’s a detailed breakdown of how this timeline might look for someone with an average job.

Factors Affecting Saving Time

Income: An average job typically means an income in the range of $50,000 to $60,000 per year. As of 2023, the median household income in the U.S. is around $70,000, but for an individual, this number can be lower.

Savings Rate: A common recommendation is to save 15-20% of your income. If we take a 15% savings rate on a $60,000 income, you would be saving about $9,000 per year after tax.

Investment Returns: Historically, the stock market has provided an average annual return of about 7% after inflation. This is a key factor in helping your savings grow over time.

Example Calculation

Let's use a simple example to illustrate how long it might take to save $1 million with an average income:

Step 1: Calculate Annual Savings

Annual Savings $60,000 x 0.15 $9,000 per year after tax

Step 2: Use Future Value Formula

The future value formula for a series of cash flows is:

FV P x (1 r^n - 1) / r

Where:

FV future value (target amount of $1,000,000) P annual savings ($9,000) r annual return (0.07 for 7% after inflation) n number of years (unknown)

Rearranging the formula to solve for n requires some iterative calculation or a financial calculator. Using an online financial calculator or spreadsheet, you can input the following:

P $9,000 FV $1,000,000 r 0.07

After calculating, you would find that it would take approximately 30-35 years to save $1 million assuming consistent savings and investment.

Strategies to Accelerate Savings

While saving $1 million might seem daunting, there are several strategies you can use to accelerate your timeline:

1. Increasing Savings Rate

The most straightforward way to save $1 million faster is to increase your savings rate. For example, if you increase your savings rate to 20%, your annual savings would be $12,000, drastically reducing the time it takes to reach $1 million.

2. Earning a Higher Income

Raising your income through career advancement or taking on a more lucrative job can significantly impact the time it takes to save. An increase in your annual income can lead to a higher annual savings, helping you reach your goal faster.

3. Achieving Better Investment Returns

To achieve better investment returns, consider diversifying your investment portfolio. Investing in a low-cost SP 500 or total stock market index fund, and reinvesting dividends, can help your savings grow at a faster rate.

4. Living Below Your Means

Living below your means is crucial. Avoid overspending, and focus on necessities. Don’t buy more house than you need, and avoid unnecessary expenses like expensive cars, boats, furniture, and jewelry.

The Importance of Consistency

Consistency is key when it comes to saving $1 million. Don't make impulsive decisions and follow a disciplined approach. Put money away every month and invest it wisely. Over time, the power of compounding will help your savings grow exponentially.

As I and my wife have experienced, it takes about 20 years to save $1 million with an upper middle-class income. We achieved this by aggressively saving 20% of our after-tax income for 10 years and investing it in a low-cost index fund. Investing is simple, but it requires discipline and patience.

So, while the journey might be long, it is completely achievable with the right mindset and strategies. The key is to start now, be consistent, and stay focused on your financial goals.