How to Grow $100,000 Retirement Savings into $1 million

$100,000 in retirement savings is often the turning point where we see our clients start getting really serious about retirement planning. Most hit this $100K milestone in their 30s, and some savvy investors even reach it in their 20s. 

Over the years, we’ve helped many of our clients grow from $100,000 in retirement savings to $1 million. How? It all comes down to three key ingredients: time, regular contributions, and your investment rate of return. To show how this works, let’s talk about David.

Ingredient 1: Letting $100,000 Sit and Grow (Time in the market)

David is 35 years old and works as an engineer in Calgary. He has $100,000 of retirement savings, and he wants to hit that $1,000,000 target by the time he retires at age 65.

He invests his money in a portfolio earning an average annual return of 7%. Without adding anything else, his savings grows entirely because of compounding returns:

• In 10 years, his $100,000 doubles to $200,000.
• In 20 years, it grows to $400,000.
• In 30 years, $800,000.
• And by 34 years, David’s savings hit $1 million.

Compounding is powerful, as it lets your returns earn returns, but it also requires patience. Waiting 34 years is a long time, he’ll be 69 by that time, past his target retirement date, which is why David needs this next ingredient.:

Ingredient 2: Adding Regular Contributions

David decides to contribute $5,000 annually to his portfolio of $100,000, which is still earning 7% per year. 

Now, instead of waiting 34 years, he reaches $1 million 8 years earlier, at the age of 61, right in time for retirement!

Here’s a look at what happens when you contribute anywhere from $0 per year, to $30,000 per year:

Assumptions: $100K starting, and 7% rate of return

Key takeaways:

• Contributions Have Greatest Impact at Dollar $1: Increasing contributions from $0 to $5,000 shaves a massive 8 years off the timeline. 
• Diminishing Returns on Additional Contributions: Going from $20,000 to $25,000 annually shaves just 2 years, while increasing from $25,000 to $30,000 only saves 1 additional year.
• Compounding Takes the Lead: After the first $10,000 or so in annual contributions, the timeline becomes more influenced by compounding returns rather than additional contributions.
• Find Your Sweet Spot: While maxing out contributions accelerates growth, the diminishing returns on time saved mean that most people can balance savings with other financial priorities after a certain point. Aim for at least that first $5K of savings per year!
• These insights confirm Kenneth Fisher’s famous saying of “time in the market beats timing the market”

Ingredient 3: Your Investment Rate of Return

The third key ingredient to hitting $1 million is your investment rate of return. Let’s look at how different return rates can dramatically impact your timeline:

Key Takeaways

1. Higher Returns Save Time: A 10% return with no contributions saves 10 years compared to a 7% return and 35 years compared to a 4% return.
2. Compounding is Powerful: The effect of higher returns compounds dramatically over time, especially when paired with regular contributions.
3. Balance Risk and Return: While higher returns accelerate your timeline, they often come with more volatility. Finding the right balance between growth and risk is essential for your financial goals.

The lesson? Your rate of return plays a critical role in reaching $1 million faster. Combine it with consistent contributions and time, and your financial future becomes much clearer. This is the ingredient that is the hardest to control, but with careful planning you can achieve your optimal returns given your risk levels. 

The Power of Time, Contributions, and Returns

Here’s the big takeaway from David’s story:

• Time lets compounding work its magic.
• Regular contributions supercharge your progress.
• And your investment return rate determines how fast your money grows.

By focusing on these three ingredients, you can transform $100,000 into $1 million, and maybe even more.”

To do all these examples that you just saw, I made a spreadsheet that calculates the number of years it will take you to hit your $1 million target, you can download it for free on our website and play around with the variables yourself!

Now let’s dive into some practical ways you can get those ingredients to reach that $1 million mark:

What to invest in to reach the $1 million?

That’s probably the most common question I get, is what to invest in? Well it depends. Before you start, I highly recommend doing the free Vanguard questionnaire to determine what your ideal asset allocation are.

Then after, there are some:

Key Points to Consider When Deciding What to Invest In

• Risk Tolerance: If you can’t stomach the idea of losing money in the short term, stick to more stable investments like bonds or GICs.
• Time Horizon: The longer your time horizon, the more aggressive you can afford to be with equities or high-growth investments.
• Financial Goals: Are you saving for retirement, building an emergency fund, or generating income? Align your investments with your objectives.

Investment Strategies by Investor Type

Commentary

Note that these are definitely not set in stone, just some observations of what each of these investor types can consider. 

1. Conservative Investors:
If you’re risk-averse or need access to your money soon, focus on safe, income-producing assets like bonds or GICs, or potentially some dividend stocks. This approach prioritizes stability over growth.

2. Moderate Investors:
For those who can tolerate some risk and have a medium-term timeline, a mix of ETFs and blue-chip stocks balances growth and stability. This strategy works well for building wealth while safeguarding against major market downturns.

3. Aggressive Investors:
If you’re aiming for long-term growth and can stomach volatility, growth-focused investments like small-cap stocks or international funds can work for youl. This strategy takes advantage of your longer timeline to maximize compounding.

4. Retirees:
Retirees should consider prioritize steady income and capital preservation. Investments like bonds, dividend-paying stocks, and low-volatility ETFs provide reliable cash flow while reducing risk.

5. High-Net-Worth Investors:
If you’ve built significant wealth, diversification is key. Alternative investments like private equity offer non-correlated returns, while tax-efficient strategies help protect your assets.

Order of the Right Investment Accounts

Start by prioritizing your contributions in this order to maximize tax advantages and long-term growth:

1. RRSP Matching: If your employer offers an RRSP matching program, this should be your first priority. It’s essentially free money added to your investments, and it also reduces your taxable income.
2. FHSA (First Home Savings Account): If you qualify, this account combines tax-deductible contributions with tax-free growth and withdrawals. It’s perfect for saving for a first home and offers significant tax benefits.
3. TFSA or Non-Matching RRSP: After maxing out RRSP matching and the FHSA, focus on your TFSA for its tax-free growth. If you’ve hit your TFSA limit, a non-matching RRSP is another great option for tax-deferred savings.
4. Non-Registered Accounts: Once all registered accounts are maxed out, non-registered accounts are your next option. Be strategic with what you hold here, as investment income is taxable.

I have another video that dives deeper into the ideal investment order in canada, so check that out if you want to learn more.

Tax Efficiency and Minimizing Fees

After choosing the right accounts, it’s very important to optimize for tax efficiency and reduce fees, both of which can have a huge impact on your portfolio over time.

• Hold U.S. Dividend-Paying Stocks in RRSPs: RRSPs allow you to avoid the 15% withholding tax on U.S. dividends thanks to a tax treaty. For example, holding $10,000 in U.S. stocks paying a 3% dividend saves you $45 a year in taxes compared to holding them in a TFSA or non-registered account.
• Hold Canadian Dividend Stocks in Non-Registered Accounts: Use the dividend tax credit to lower your tax rate on Canadian dividends when held in non-registered accounts. (must be Canadian! US dividends don’t have this benefit)
• Hold Interest Earning Assets in RRSPs or TFSAs: Interest income is taxed at your marginal rate, so shelter interest producing assets in RRSPs or TFSAs to avoid losing returns to taxes.

Increasing Your Savings Rate

Even small increases in your savings rate can make a huge difference over time. By increasing your savings rate, you’ll be able to contribute much more to your investments. Here’s how to make it happen:

• Automate Contributions: Set up automatic transfers to your TFSA or RRSP so saving becomes effortless and consistent.
• Use Windfalls Wisely: Allocate bonuses, tax refunds, or unexpected windfalls to your investments instead of spending them.
• Cut Unnecessary Expenses: Review your budget and identify areas where you can free up cash flow, like subscriptions you rarely use or dining out less often.

Going back to our example, you saw how much of a difference $5,000 a year in contributions made, so good savings habits are crucial to reach your goals!

Earn More to Invest More

Earning extra income is another way to supercharge your savings and reach your financial goals faster.

Ideas to Generate Additional Income:

• Freelancing or Consulting: Use your skills to take on side projects or offer consulting services.
• Renting Property: Turn unused rooms or vacation homes into rental income.
• Monetize a Hobby: Photography, crafting, or tutoring can bring in extra money while doing something you enjoy.

Why This Matters:
Even small additional contributions compound over time. For example, an extra $2,000 a year invested at 7% adds over $100,000 to your portfolio in 20 years. Every bit helps accelerate your progress toward $1,000,000.

Avoiding Common Pitfalls

Avoiding costly mistakes is just as important as choosing the right investments. Here are some common pitfalls to watch out for:

• Emotional Investing: Don’t let fear drive your decisions. Panic selling during market downturns locks in losses and prevents recovery. Stick to your long-term plan.
• Over-Concentration: Diversify your portfolio to avoid being overly reliant on one stock, sector, or investment type. Spread risk across asset classes and geographies.
• Inflation Awareness: Focus on real returns (after inflation) rather than nominal returns. Investments like equities or REITs can help protect against inflation over the long term.
• High Fees: Avoid mutual funds with high management expense ratios (MERs). Opt for low-cost ETFs or index funds to keep more of your returns compounding over time.
• Lifestyle creep: As you start earning more money, try to resist the urge to spend more of it, and stash away more to your investments!

Ready to turn $100,000 into $1 million? Start with smarter savings, optimized investments, and tax-efficient strategies. Visit our website for personalized planning, and like and subscribe for more actionable tips. Check out the planning services we offer, and book a free consultation when ready!