How to Turn $100,000 Into $1 Million for Retirement: 3 Smart Investment Strategies

On Feb. 26, the Congressional Research Service (CRS) released its "Distribution of Retirement Account Balances: Analysis of the 2022 Survey of Consumer Finances." The survey results indicate that only 4.6% Americans have a retirement account worth $1 million or more. Other interesting facts uncovered by the CRS survey include:

• Over half (54.3%) of all U.S. households had retirement plan assets.
• Approximately 30% had assets greater than $0, but less than or equal to $100,000.
• 15.5% had assets of over $100,000, but less than or equal to $500,000.
• 4.7% had assets greater than $500,000, but less than or equal to $1 million.

If you have $100,000 that you hope to turn into $1 million for retirement, there are several ways you can go about it. Here are three of them.

Image source: Getty Images.

1. Start today

The surest way to grow your money is to start investing early. There's nothing like time plus compound interest to grow your investment. For example, a low-cost index fund that tracks a broad market index like the S&P 500 has historically provided an annual return of 9% to 10% before inflation. Even with a smaller return of 7%, a 27-year-old who invests that $100,000 today would have approximately $1,067,600.00 available to them by age 62.

However, if that ship has already sailed and you're a little older, you can still make it work. It may just take a bit more nudging. Let's say you're 45 and life has gotten in the way one too many times for you to invest the way you've wanted to.

• Invest the $100,000: It doesn't matter if you invest it in an employer-sponsored retirement plan, open an IRA (traditional or Roth), or another investment with strong growth potential. The point is to give it a home.
• Make regular contributions: Add $15,000 annually to the investment. You can do this by kicking in $1,250 monthly, $290 weekly, or $3,750 quarterly. No matter how you break it down, contributing the funds to a pre-tax account -- like a 401(k) or IRA -- can cut your tax bill, making it easier to contribute.
• Enjoy your $1 million: Following this plan, you could have $1,001,900 by full retirement age (FRA). Currently, the FRA is between the ages of 66 and 67 for most workers.

2. Live below your means

Suggesting that you live below your means during this period of high inflation may seem like a bad joke, but the truth is that spending less than you earn can make you a millionaire. Even if you must pay off high-interest debt before you begin to live below your means, the payoff can be tremendous.

Imagine that you bring home $6,000 monthly. You avoid high-interest debt and never allow your monthly expenses to exceed $4,800 (80% of your take-home pay). Here's what having an extra $1,200 available each month can do for your long-term financial picture:

• Provide extra to put into an emergency fund: Once you've built an emergency fund, you don't have to use a credit card or take out a personal loan to make surprise home repairs or attend a far-away funeral. Even if it doesn't feel like it in the moment, not going into debt allows you to continue to live below your means.
• Allow you to take advantage of amazing investment opportunities: If there's an up-and-coming company you'd like to invest in, living below your means gives you access to funds you can use to buy in without worrying about whether you can still pay the bills. Let's say you invest $2,000 in a stock that exceeds early expectations and provides an annual return of 12%. After 10 years, that $2,000 investment would be worth $12,380, even if you never invest a penny more.
• Set you up with a healthy post-retirement budget: Let's face it, the less debt you carry, the easier it will be to design a household budget that fits within the parameters of your retirement savings. Living below your means is one of the best ways to ensure you can pay off your mortgage before retirement. So what if your house isn't a McMansion? You'll have enough spare money each month to make it an attractive, comfortable, well-maintained space you can be proud of.

In short, living below your means is a non-sexy way to create the life you want without the stress you'd like to avoid.

3. Remain diversified

Whether you invest in index funds, mutual funds, dividend stocks, annuities, or real estate, monitor your portfolio to ensure it remains diversified.

Imagine a fuel injection system that comes onto the market, allowing cars to easily achieve 100 miles per gallon. As an investment, it seems like a sure thing, and caught up in the excitement, you go all in by cashing out other investments to participate in something you're sure will make you a millionaire many times over.

Except, it doesn't. A few years after hitting the market, drivers with the fuel injection system realize how quickly their pistons are wearing down due to excessive heat and are unhappy about the money they're spending on vehicle repairs. The company's stock plummets.

By ensuring your portfolio is well-diversified -- even when you find investments you're passionate about -- you can weather the loss. By putting too many eggs in a single basket, you risk your principal investment. If you find an investment you're excited about, go for it! Just keep all those steady, lower-risk investments in the mix to protect you if things go south.

Turning $100,000 into $1 million is a slow and steady process that involves living in the moment while keeping your eye on the horizon.

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