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

Does the prospect of saving $1 million (or more) for retirement seem so far out of reach that you don't even see much point in trying? If so, you're not alone. That feels like a huge number, especially when you're starting with nothing.

The fact of the matter is, however, most self-made millionaire investors didn't reach the milestone overnight, or even with a few lucky trades. Most of them did it by taking tiny steps forward for a long, long time. You can do the same by just contributing an average of $10 per day to the effort. Here's the math.

Image source: Getty Images.

Slow start, big finish

It sounds too good to be true. Nevertheless, it's true. Investing just $10 per day on an average, or $2,500 per year (assuming 250 working days a year) in an S&P 500 index fund with an average annualized return of 10% will do the trick. (And yes, we are counting only the working days in a year, excluding weekends and a few other holidays, that contribute to your income!)

The graphic below shows the exponential progression of making such a steady investment. Roughly one-third of the way through this timeframe the money annually earned on your cumulative contributions eclipses your annual contribution. Things don't really start to take off until about two-thirds into this stretch, when you begin earning more money on your cumulative investment growth than you likely earn in the form of work-based wages.

Data source: Calculator.net. Chart by author.

The chief challenge to getting to the seven-figure mark? Patience.

Take a closer look again at the graphic above. Notice how many years it took to reach the $1 million mark. That's 38 years of working, saving, and often scrimping before reaching that milestone. That's longer than most people care to work a typical wage-earning career.

Perhaps the biggest test of patience in working and saving for 38 years, however, is the one that's less obvious in the image above. That's the fact that your net investment growth ("Net Compounded Gains") doesn't exceed your cumulative cash contributions until about halfway through this timeframe. That's a long time to keep putting money toward a cause that doesn't feel as if it's getting any real traction. It would be easy to give up well before then.

Just don't fall into this pessimistic way of thinking. The whole point of the graphic is to illustrate that the vast majority of your retirement savings' growth takes shape in the last one-third of the span in question. For perspective, every dollar that returns an average of 10% per year will be worth $2.71 a decade later, but 20 years down the road it's going to be worth $7.33.

And 30 years into the future, that reinvested $1 is going to be worth $19.84. That's the power of compounding. The key is simply amassing the biggest possible amount of seed money to start the last crucial leg with.

Then there's the prospective discouragement that doesn't appear on the graphic at all. That's the stark reality that the market's growth never moves in a straight line as it does on the chart above. Although the actual yearly average of 10% gets us to the same endpoint 38 years later, in reality, some of these years are worse than others. One out of every three to four years, the stock market actually suffers a loss, in fact. Continuing to pour money into the market even when it's down this much can be so scary that it's easy to simply stop doing it.

But that's exactly when you should be the most willing to keep putting your money to work.

Just start somewhere, with something

There are some important footnotes to add here. Chief among them is the fact that $1 million 38 years from now won't mean nearly as much as it does today. Assuming annual inflation of 3% between now and then, that future $1 million is equivalent to roughly $325,250 in today's dollars.

There's also the not-so-small matter of taxes. If you're not saving this money in a Roth retirement account, you'll be sharing as much as one-third (if not more) of your net gains with the state and federal government.

Inflation can also work in your favor, though. Your income will grow over time too, allowing you to eventually tuck more than $10 away every day on an average in your retirement account. Plus, you'll almost certainly get pay raises overall time, adding to the overall growth of your disposable, investable income.

Whatever the case, you should be doing whatever you can to make your retirement nest egg as big as it can possibly be right now, even if it's seemingly not much. Most people make their retirement fortunes only a few dollars at a time. They just come up with the money faithfully, putting this cash to work as soon as they can, no matter how small the amount, so they can let time do as much heavy lifting as possible.

Again, it's a rarity for average, ordinary investors to experience overnight life-changing gains. Most peoples' growth is actually rather slow going until the fireworks start in earnest during the last one-third of however long they're saving for retirement.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.