I didn’t win Saturday night’s Powerball drawing but then again, I didn’t buy a ticket, so my odds of winning were zero. At one in 292 million[i], if I had bought a ticket, my odds of winning would have been 0.000000342 percent, so essentially zero, as well.
There were 14 who won $1 million (of 18.3 million players), however, and to those, my heartfelt congratulations.[ii] $1 million is clearly a large sum of money. As a point of reference, 75 percent of U.S. workers age 55 or older have less than $250,000 in savings and investments.[iii]
I’m not here to debate the merits of buying lottery tickets, though, and with today’s jackpot exceeding $1 billion, I can certainly see the temptation. What I am here to do is discuss another path. Because with some discipline, the average worker could have $1 million (or more) saved for retirement at the end of their working career.
The power of compounded earnings
Invest $10 per day ($3,650 per year), for forty years, earning 8 percent and you have your $1 million.[iv] And if you’re saving for retirement through an employer sponsored 401(k) plan, you’d probably only need to save about $7 per day, given that most employers make a matching contribution.
Pay yourself first
While many workers are spending everything they have on the basics of housing, food and transportation, most workers have discretionary dollars, and for the most part, they’re choosing to spend them, not invest them. To that point, Americans spent $11 in 2014 for every dollar they contributed toward retirement.[v] Reducing spending by nine percent could double retirement contributions.
People have multiple financial priorities and limited financial resources – I get it. But as I’ve told my children (and anyone else who will listen), “pay yourself first.” Make savings and investing a top priority.
That’s the ticket to becoming a millionaire.
[iii] 2015 Retirement Confidence Survey, Employee Benefits Research Institute and Greenwald & Associates
[v] Based on: consumer retail spending data from http://www.statista.com/statistics/243448/holiday-retail-industry-sales-in-the-united-states; contributions into private defined contribution plans from The Cerulli Report, Retirement Markets 2015; and contributions into individual retirement accounts from Retirement Markets 2015, Retirement Research Inc.