Can You Retire a Millionaire by Investing Just $10 a Day? The Answer Is Yes--Here's the Math.

Key Points

• The keys to building a $1 million retirement nest egg are discipline, time, and the right investment.

• Taxes and inflation are important considerations.

• The $23,760 Social Security bonus most retirees completely overlook ›

Probably one of the biggest myths about investing is that you need a lot of money to make money. Sure, having a hefty amount upfront would be nice. However, it isn't absolutely necessary.

There are two key prerequisites to building a fortune without having a ton of money. First, you need time. Second, you must be disciplined.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Can you even retire a millionaire by investing just $10 per day? The answer is "yes."

Image source: Getty Images.

Here's the math

If you invest $10 per day every day of the year, the total would be $3,650 (with a little more in leap years). However, let's assume you take weekends off and only invest on weekdays. Let's also factor in 10 holidays during the year. That gives us 250 days of investing $10 per day for a total of $2,500 per year.

Now the important question: How should you invest the money? Warren Buffett stipulated in his will that 90% of the cash his family inherits should be invested in low-cost S&P 500 (SNPINDEX: ^GSPC) index funds. He specifically suggested Vanguard's.

Let's suppose you follow Buffett's approach and regularly buy shares of the Vanguard S&P 500 ETF (NYSEMKT: VOO). This exchange-traded fund (ETF) attempts to track the performance of the S&P 500. Over the long run, the S&P 500 has delivered an average total annual return (including reinvested dividends) of around 10%.

How long would it take to build a nest egg of $1 million? If we plug $2,500 per year and a rate of return of 10% into a financial calculator, it will tell us that roughly 38 years of investing would be required. A person who plans to retire at his or her Social Security full retirement age of 67 would need to begin investing $10 per day at age 29.

A few caveats

Is it really that simple to become a millionaire? Yes and no.

Our calculation didn't factor in the impact of taxes. You could avoid the tax issue, though, by making contributions to a tax-advantaged retirement account such as an IRA or 401(k) plan.

You might wonder if investing $10 per day in the Vanguard S&P 500 ETF is even possible. After all, the ETF currently trades at more than $580 per share. You could simply save up enough money to buy one share. Alternatively, many online brokerages allow buying fractional shares of stocks and ETFs.

Importantly, we're assuming that you resist the temptation to try to time the market. Investing regularly is a critical key to success. You also can't withdraw money along the way, even if your retirement account makes it relatively easy for you to do so.

Finally, there's one issue that's more difficult to work around: inflation. Unfortunately, the corrosive effects of inflation mean that $1 million 38 years from now won't be worth the same as $1 million today. The S&P 500's inflation-adjusted total return over the long term has been around 6.9%. Investing $10 per day for 250 days each year with that return would take roughly 50 years to grow to $1 million in inflation-adjusted dollars.

What if you don't have 38 years before you retire?

Some readers won't have 38 years until they retire. How can you become a millionaire retiree if you're in the group? You can invest more than $10 per day, try to get a higher return than the S&P 500 has historically generated, or both.

If you have 20 years until you retire, you'll need to invest around $16,000 each year ($64 per day) to build $1 million, assuming a 10% return. If you only have 10 years, that amount will need to increase significantly to almost $57,500 ($230 per day). This underscores the importance of having time on your side.

However, obtaining a higher rate of return can work wonders. The Vanguard Russell 1000 Growth ETF (NASDAQ: VONG) has delivered an average annual return of 16.79% since its inception in 2010. If the ETF delivered this same average return going forward (a big if, by the way), you could still invest $10 per day and be a millionaire in less than 27 years.

The $23,760 Social Security bonus most retirees completely overlook

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.