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Everyone want to retire comfortably with a million Ringgit! No, I am not talking about your EPF account. But how to retire as a millionaire with the current low RM2,000 plus salary? It turns out not that difficult after all. The secret of the million Ringgit dream starts by aiming to save 2 times of your annual gross income by the age of forties. For most people, it means after working for 14-15 years. Once you achieved that, the odds of becoming a millionaire are on your side. The reason is simple, once your saving hits a certain level, the returns of your saving (that you put in investment) will became your major source of retirement saving.

Here is how: you first need to achieve a double digit saving from your monthly salary, regardless how much your current salary is, aim for at least 15%. Fair to say, this is not an easy task, it will be a hard juggling between job and living for a long period of time.

You then invest the accumulated saving for a target return of at least 7%, after inflation. Historically the KLSE returns have been in the double digits and thus 7% returns is reasonable. For the risk adverse, a more conservative approach is to invest in index fund where as long as the economic is growing, the fund should just doing well.

You will do both the saving and investing religiously and watch your portfolio returns grows until it became greater than your annual saving, it usually take 13-15 years if you do it right. When you reach this stage, your money is now working harder for you! You have hit a very important milestone – your investment now became the main driver for your retirement. You should, however continue with the saving habit as it will start to snowball and payoff handsomely when you retired.

A Simple Simulation
In my simplify simulation, I assumed a 18% saving rate and 7.5% of investment return rate where the starting pay is RM2,300. I further assumed that the salary grow at 5% annually for the next 30 years. With that, after 14 years, investment returns start overtaking saving amount and thing starts snowball from there on. At year 30th, the nesting egg has grown to RM1,000,000! Well done! (pls see table below)

The Challenge
Well, my little simulation is too simplify and have some flaws – the 5% annual increment for consecutively 30 years is not realistic, let alone a high saving rate of 17%! But if anything, the simulation does shows that it is POSSIBLE to become a millionaire by saving aggressively as early as possible and invest what you have saved.

Without saying, a bigger pay will help a lot as it can pump up your saving provided you continuously  still save at the double digits.  You have heard it million of times; it is not how much you earn that matters, but how much you save.

To realize that million Ringgit dream, you need to have a great deal of patient and discipline. The earlier you can saving your money, the better it gets. Finance expert generally agreed that if you’re saved close to two times of pay by early 40s, you’re probably in pretty good shape to cash out your million Ringgit jackpot!

P/s: So how well I am doing? No good, I am still a distant away to achieve 2X of my current annual pay. Mistakes made in early career years are hard to erase and as I have found out, unforgiving!