## There were 17.35 million millionaires in the U.S. in 2018, according to estimates from the **Credit Suisse Research Institute’s Global Wealth Report 2018**.^{1} Otterwize thinks that there’s plenty of room at the top for more.

So heads up 1%: There’s a new generation of people ready to get their finances in shape and looking for their piece of the pie.

And listen up 20-somethings and 30-somethings: There’s gonna be a pop quiz on this stuff when you turn 65, and you better ace it.

**What do we mean by The New 99%?**

The New 99% is our term for the people who might someday accumulate enough wealth to join the economic ranks of the current 1%. (Yes, we see the mathematical inconsistency here—let’s call it poetic license.) We think that this could potentially be accomplished by following one simple idea that most current millionaires probably already know:

**Small amounts invested regularly have the potential to grow to more than $1 million by retirement if you start investing early enough.**

Consider this example:

**A 25-year-old who invests $5.25 a day in a retirement account that generates an annual return of 10% over time would have more than $1 million by age 65. **

- The key is to start investing early, because the power of compounding needs long periods of time to work its magic.
- Starting early allows you to take advantage of the greatest asset that you have right now: time.
- For every year that you delay saving and investing for retirement, the daily amount that you would need to save in order to reach $1 million by age 65 (using the average return rate assumptions shown in the table) goes up. (See Table 1 and Table 2 below.)
- This is not just for people who earn enormous salaries. This is for anyone who can find a way to save a little bit every day (and who starts investing early enough).
- For the 40-year period ending 12/31/2017, the average annual return of the S&P 500 was 13.15%, and the compound annual growth rate (CAGR) was 11.86 %. (See “Average Annual Return and CAGR of S&P 500” table below.) The same numbers over a 30-year period were 12.20% and 10.72%, respectively. (Although past performance is not a guarantee of future results.)
- According to a
**2017 PwC Survey**, almost half (46%) of baby boomers have less than $100,000 saved for retirement. We think millennials can do better than that: The key is getting started sooner not later.

**Three steps to consider**

If you’re in your 20s or 30s (it gets harder as you get older, which is why we’re not talking about 40-and-over), consider these three steps:

- Find your number in the table (your daily savings goal).
- Save that amount every day. You can figure it out weekly or monthly—whichever is easier for you.
- Invest the savings—as long as you have paid off all of your non-mortgage debt and have an emergency fund in place. (See “
**Starting to invest early.**“)

**1. Find your number (your daily savings goal)**

Look up your age in column 1, and find your daily savings target in column 2. This is the amount that you would aim to save every day to become a millionaire at age 65 (last column)—*assuming you invest the savings at an annual average return of 10%* (compounded monthly). This number is solely based on age (not on income or any other factor). By starting early, the number that you would need to save every day is smaller. (We cut off the table after 40, because the power of compounding needs time to work its wonders.)

**TABLE 1: FIND YOUR NUMBER**

**The New 99% Table calculated with more conservative return estimates**

Since nobody can predict future returns, and these are all just estimates anyway, the following table shows the daily savings target calculated with lower estimated returns (5%, 6%, 7%, 8%, and 9%), for comparison purposes.

Look up your age, and find the corresponding number in columns 2-6. This is the amount that you would aim to save every day to become a millionaire by the age of 65, *assuming that you achieve an annual return of 5-9%* (compounded monthly).

**TABLE 2: FIND YOUR NUMBER (@ different interest rates)**

**2. Find ways to save that amount every day**

Once you know what your daily savings target is, find ways to save that amount every day (or the equivalent of that amount on a monthly basis). This could be done in one of two ways (and you might want to try a combination of both):

*a. Cut back on your spending.*

*b. Find ways to bring in extra income*.

**a. Cut back on your spending:**

**a. Cut back on your spending:**

- One way to start saving money is to follow a
**budget**so that you can see where your money is actually going. Take a closer look at things like:**Housing**: If you are looking for a new apartment to buy or rent, don’t necessarily go for the largest or most expensive space that you can afford. See if you can scale back a little, and stash some of those savings away for your future. See**Liv’n, Mov’n & Nosh (The Big 3)**.**Transportation**: If you’re in the market for a car, consider your options carefully. You might be better off with a simpler model or a used car. It’s not prudent to take on a huge car loan just to drive a shiny new car with features that you may not even want. And take a look at leasing vs. buying. (Check out transportation issues to consider**here**and**here**.)**Food**: It’s very easy to spend more than you realize at restaurants and bars. Even purchasing takeout and other prepared food can hit your bottom line. Try to find ways to**minimize these expenses**, or channel your inner chef by cooking more at home to save money. Check out**Simmering Savings**for easy recipes and a look at what you might be able to achieve if you invest your cooking savings.**Subscription Services**: Track your monthly spending on these services (yep, they seemed like such a good idea at the time), and cancel those that you aren’t using enough (or at all).**Utility Bills**: Do a little research, and just know that sometimes a simple call to your current utility provider to ask for a lower rate or plan is all it takes to make a significant dent in your monthly bill.

- Otterwize has lots of information about ways to save the bacon that you’re bringing home. And on that topic, see “
**Before you break the piggy.**” Also, check out “Savings apps”**here.** - If you have credit-card debt or student-loan debt, look into consolidating or refinancing at a lower rate. This can save you a lot of money in interest over time. See
**here**and**here**for more on consolidation and refinancing. Why pay high interest rates if you can lower those rates and pocket the difference? - If you have a mortgage, consider refinancing at a better rate (if you plan to stay in the home long enough to justify the upfront cost of refinancing). See
**here**for more information on mortgages.

**b. Find ways to bring in extra income.**

**b. Find ways to bring in extra income.**

- Consider taking on a
**side hustle**to generate extra income each month. - Is it time to ask for a promotion at work or to consider switching to another job entirely? See “
**Managing Your Career.**“

**3. Invest the savings.**

If you’ve made it this far, you’ve found your daily (or monthly) target, and you’ve identified possible ways to fund that number. Congratulations!

So now what would you consider doing with the money that you’d be saving?

As long as you have paid off all your non-mortgage debt, and you have an emergency fund to cover at least 6-9+ months of expenses (and a financial cushion in place for other unexpected expenses), then you might want to consider getting started with investing, even if you start with just a small amount.

Otterwize has a detailed discussion of investing basics and how to get started **here**, including a discussion of risk and possible ways to manage risk.

**Hold on a minute . . . . Is 10% a realistic return rate for these calculations?**

**First, a look at past performance (even though it is no guarantee of future results):**

- It is useful to compare average annual return and CAGR (Compound Annual Growth Rate) of the S&P 500 (see table below).
- Average annual return is just the arithmetic mean.
- CAGR represents an annualized constant rate that would get you from the beginning balance to the ending balance over a set time period, accounting for compounding. CAGR is calculated by taking the quotient of the ending value over the beginning value, raising that result to the 1/nth power (where n=number of years), and subtracting 1. CAGR smooths out actual volatility from year to year by assuming a steady compounded growth rate. As shown in the table below, the CAGR for the S&P 500 over the time periods displayed is consistently lower than the average annual return during the same time frame.

- Over the past 90 years (1928-2017), the S&P 500 generated an average annual return of 11.85% and an annualized return (CAGR) of 9.9%, including dividends. (Figures calculated
**here**.) - For the 30-year period ending 12/31/2017, the average annual return of the S&P 500 was 12.20%, and the CAGR was 10.72%.

**TABLE 3: AVERAGE ANNUAL RETURN AND CAGR OF S&P 500**

(Table figures calculated using moneychimp.com market CAGR calculator. Please note that these figures include dividends but do not account for inflation.)

- See also data compiled by Professor Aswath Damodaran, Professor of Finance at NYU Stern School of Business, showing the annual arithmetic average of the S&P 500 of 11.41% and the geometric average of the S&P 500 of 10.05% from 1968-2017 (figures include dividends).

For 20-somethings and 30-somethings with at least a 25-year time frame until retirement at age 65, using an estimated rate of 10% compounded over 25 to 40 years appears to be a fair approximation for the purposes of this illustration. *That is not the same thing as expecting any investment to result in a steady annual rate of 10% going forward (see below).*

**2. Volatility and smoothing results over time:**

**2. Volatility and smoothing results over time:**

CAGR represents a growth rate that, with compounding, would result in the ending balance for the time period in question, *assuming the investment had grown at a constant, fixed annual rate (which does not happen in the real world)*. The actual volatility or variation in yearly returns is smoothed out by using CAGR. For example, if an investment had a 10% compound annual growth rate over a long time period, that does not mean that the yearly returns were all around 10%. It is more likely that some years had much higher results and others had much lower (or even negative) results. CAGR is useful to provide a broader view of historical compounded performance over time, but it should not be misunderstood to represent the actual return rate in any particular year or years.

Average annual return measures the arithmetic average of each year’s return over the time period without taking into account compounding from year to year. By accounting for the effect of compounding over long time periods, CAGR provides a better measurement of historical returns, especially in a volatile market.

**But wait . . . what about inflation?**

“Yes, but what about inflation?” is a common rallying cry from people who read about the possibility of generating $1 million down the road. There’s no denying that inflation needs to be considered in any kind of long-term financial planning and that it certainly affects the buying power of any future investment amounts. The point, though, is that earning a healthy return on your investments, even with inflation, is better than not investing at all and not even keeping up with inflation.

Which is better: having a nest egg of $1,000,000 40 years from now, which might only be worth about $450,000 adjusted for inflation, or having a nest egg of $0 40 years from now, which would be worth $0 with inflation?

So we’ve crunched a few numbers to account for inflation. But before you look at these and cringe, just keep in mind that decades from now, salaries and other income will likely rise along with inflation, so the amounts that you might be able to invest would also tend to rise. That’s why it’s hard to do a straight apples-to-inflated-apples comparison. But to answer all the people who say “But what about inflation,” here it goes:

(This table looks at returns with and without accounting for inflation. These figures assume an annual return of 10% (compounded monthly) and an annual inflation rate of 2%. Column 2 is the estimated amount that you would need to save every day to become a millionaire at age 65 (without accounting for inflation) at a 10% average annual return. Column 3 is the estimated amount that you would need to save every day to have the buying power at age 65 of $1 million in today’s dollars (accounting for inflation) at a 10% average annual return.)

**TABLE 4: FIND YOUR NUMBER (adjusted for inflation)**

**So what do all these numbers really mean?**

The tables and charts presented above are *not* meant to suggest that if you save $X every day or every month and invest those savings in the market over time, then you will definitely receive returns of $Y by the time you turn 65. You might do better. You might do worse. Nobody can predict any of this, and it’s important to know that up front.

- The point of all these tables of numbers is:
- to show some hypothetical scenarios—based on different assumptions, factors, and risks—to help you make informed decisions about your finances
- to put the concept of saving and investing on your radar screen
- to get your mind into a money-saving (and possibly also investing) mindset

- It is up to each person to decide for him/herself whether to take on the risk of investing.

**Some general thoughts on investing**

- Do your homework.
- Understand what you’re investing in before you invest.
- If you don’t understand something, ask questions.
- Start small.
- Monitor your progress from time to time. Don’t become glued to the day-to-day results.
- Consider increasing your investment amounts as your finances allow.
- Markets will go up. Markets will go down. Don’t panic when they go down. Don’t be irrationally exuberant when they go up.
- Don’t invest in anything that sounds too good to be true (because there’s no such thing).
- Don’t invest on margin (using borrowed funds). That can destroy you when markets are in a downslide.
- If you are using an advisor, you should always know how your advisor is being paid. Make sure your advisor follows the fiduciary standard, meaning s/he is acting in a position of trust, always placing your financial needs first and acting in your best interests above her/his personal financial interests.
- Don’t invest more than you can afford to lose.
- Feel good about yourself for taking a positive step towards strengthening your financial future.

#### Footnotes

- See
**Credit Suisse’s Global Wealth Report 2018**(pdf link at bottom), Table 2 at p. 11.