Tuesday, May 7, 1996
So You Want to Retire a Millionaire?
by MF DowMan

There is something magical about six zeroes at the end of a figure. Throughout American culture, the term "millionaire" seems to be the benchmark for success. Sure, being a millionaire today means nothing compared to being a millionaire at the end of the nineteenth century, but the magical figure still holds most of us under its spell (especially those of us who are looking at the number as a goal, not a milestone long since passed).

What does it take to retire a millionaire these days? (A million, dummy ... doh!) Yeah, yeah, but what does it take to MAKE it there if you aren't born into money and still have a few years to work towards it?

Let's look at Ivan T.B. Rich (say it with Sesame Street's Count von Count's voice). Ivan's a Romanian emigrant who's now an American citizen. (How else could I justify the name?) He's 30 years old, has built his IRA up to $10,000 and is a strict Foolish Four Dow Dividend Approach investor. Ivan wants to retire at age 60, but he wants to do it as a millionaire. Will he get there?

If we assume a 22% growth rate over the next 30 years (which equals the Foolish Four's compounded rate since 1971), Ivan's $10,000 will grow to $3,897,578.94 by the time he turns 60, easily putting him in the million-dollar club. But we all know that inflation will eat into that buying power. A million 30 years from now will only be worth $507,000 if you account for inflation at 3% a year. Even then, however, Ivan's 30-year growth would leave him $1.6 million in today's buying power. And that's assuming he doesn't add another penny to his IRA over the 30 years!

Let's look at it from another angle. Starting with the same $10,000 and the same 22% growth rate, how fast can Ivan hit the $1 million mark? If he doesn't add a penny to the account, it'll take 23 years to get there. If he adds the allowable maximum of $2000 a year, he'll get there 3 years faster -- at age 50.

What's it all mean? Start now. Take advantage of compounding's best feature -- time. And do whatever you can to take advantage of the tax-deferred accounts available to you. Even starting with a modest portfolio, given time and a Foolish approach, you can retire in style like Ivan T.B. Rich.

Transmitted: 5/7/96