How to Grow $100,000 to $1 Million in Retirement Savings

Significant returns can be achieved by investing your retirement savings in stocks like Toronto-Dominion Bank (TSX:TD).

| More on:
Silver coins fall into a piggy bank.

Source: Getty Images

Do you want to grow $100,000 into $1 million in retirement savings?

It might sound like a tall order, but it can actually be achieved within your lifetime with just a 10% annualized return. If you aren’t aware, 10% is about what U.S. stocks as a whole have delivered over the last 30 years. Thanks to the power of compounding, this 10% return can easily turn $100,000 in a million with enough time. Here’s how.

Returns needed to turn $100,000 into a million

To turn $100,000 into a million, you need a 900% return. That is, you need to achieve $900,000 in gains plus the $100,000 you started with. You might be wondering how on earth that can be done when 900 divided by 10 is 90. Shouldn’t it take 90 years — more than an average human lifespan — to get to $1 million from $100,000?

No, it does not take anywhere near 90 years. Thanks to the magic of compounding, it takes more like 25 years. When it comes to stock returns, you don’t get the holding period return by simply summing annual returns on the base amount. Instead, you multiply one plus each year’s return together, then subtract one.

1.1 to the power of 25 is 10.83. Subtract one and you’re left with 9.83, which, in percentage terms, is 983%. So, a 10% return will add up to a 900% return if you earn it consistently over 25 years. In fact, it would only take 24-and-a-half years to get to 900% at 10% per year, as 983% is a little higher than we need.

So, turning $100,000 into a million is quite doable with historically typical stock market returns. That does not mean that such an outcome is guaranteed. Possibly, future stock market returns will be worse than past returns. Nevertheless, 10% is not an unrealistic annualized return to aim for. You may not achieve it, but by buying the type of diversified portfolio that produced such returns in the past, you should at least do okay.

Some investments to consider

Having explained that a 10% annual return can turn $100,000 into a million dollars over 25 years, it’s time to explore some investments that could help you achieve this result.

Index funds are always good choices. They invest in diversified portfolios of stocks that reduce your risks. Overall, they are highly recommended.

If you’re interested in individual stocks, you could perhaps consider something like Toronto-Dominion Bank (TSX:TD). TD Bank is a Canadian bank whose shares have a 4.83% dividend yield. The yield alone takes you about halfway to the 10% per year return needed to make the math above work. Second, TD Bank is doing well as a company. It has grown its revenue by 7% per year over the last five years. It has a payout ratio of 47%, meaning it’s paying out less than half of its profits as dividends. Finally, it is investing in expansion, having bought out the U.S. investment bank Cowen earlier this year. Overall, it’s a good bank for your buck.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »