How a College Graduate Can Retire a Millionaire on $50 a Month

Millions of college students are graduating from college this month and will soon be working full-time, if they haven’t already. So while this is an exciting time for graduates, it is also a potentially unsettling time.

Finding a job, a home, and leaving the nest can be a bit overwhelming. There are many difficult decisions to make, but one of the easiest is to start investing for retirement now.

The idea of ​​thinking about retirement even if you haven’t started working full-time yet or are just starting out may sound strange to some. But no matter how much money you make, starting early is the single most important way to retire rich and comfortable.

Time is your best ally

People often don’t get serious about investing for retirement until they are in their 30s or 40s. It’s better to start late than never, but putting off your retirement plans is just playing catch-up.

When you need to save for retirement, you may have to invest more money than you can afford. Additionally, you may end up taking on more investment risk than necessary.

On the other hand, if you start saving and investing right out of college, you have two of your biggest allies: time and the power of compound interest. With more time and the power of compounding, investing becomes much easier, less risky, and much cheaper.

In fact, the more time you have, the less money you have to invest per month. If you start early enough, you only need to save $50 a month to retire as a millionaire.

Retire as a Millionaire

If that sounds like an exaggeration, just do the math. Let’s look at two scenarios: One starts investing at age 22 and the other starts at age 32.

If you are 22 years old and fresh out of college, the best decision you can make is to invest in an exchange-traded fund. ETFs are baskets of stocks, many of which track major indices.

So, instead of hand-picking a few profitable stocks, you buy stocks as a single investment, for example owning all the stocks in a major index like the S&P 500 or Nasdaq 100.

At 22, I would choose a Nasdaq ETF called the Invesco QQQ (NASDAQ:QQQ) ETF, which tracks the tech-heavy Nasdaq 100. The Nasdaq 100 may be more volatile in the short term, but offers the best returns of any major index over the long term.

In fact, the Nasdaq 100 has recorded an average annual return of 13.5% over the 39 years since its launch in 1985.

If you went to Robinhood or another online brokerage and invested $50 a month in Invesco QQQ at age 22 and kept investing for 43 years until you retired at age 65, you could make $1.1 million from that fund alone.

This total is based on the average annual return of 13.5% given by the Nasdaq 100 over the past 39 years. It also assumes you only invest $50 per month. You can also do the calculation yourself using one of the many free investment calculators you can find online.

power of synthesis

To demonstrate the incredible power of compounding returns to essentially making money, let’s take a look at how much money you would accumulate if you started at age 32 using the same inputs.

After investing $50 per month in Invesco QQQ for 33 years at the same 13.5% annual return, you would only have $306,000. So if you wait 10 years to start investing, you’ll have almost $800,000 less by age 65.

If you waited until age 42 to invest in this ETF, you would only have about $83,000 by age 65. That’s it.

Keep in mind that this means investing in a single ETF outside of your 401(k) or IRA. If you work for a company that has a 401(k), another no-brainer is to immediately invest in that company and match the entire company. Then you can easily become a millionaire by the age of 65.

So the most important decision a recent college graduate can make right now for their future is to start investing.