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Yahoo
25-07-2025
- Business
- Yahoo
Investing $1,544 for your baby can help them retire with $1 million, financial pros say. Could it be that simple?
Amassing $1 million by retirement is a feat most Americans will never achieve for themselves, let alone for their kids. But it doesn't need to be this way, financial experts say. In a recent episode of the 'Money Guy Show,' podcast hosts Brian Preston and Bo Hanson, both financial planners, outlined three 'straightforward' ways parents can help their children retire with $1 million. The strategies require relatively modest contributions from the parents, provided they get started early enough, of roughly $1,500 as a lump sum at birth or $9,200 gradually invested by age 18. The younger the child is when they get started, the less the family needs to contribute to eventually reach seven figures. Wall Street braces for deluge of Treasury bills, a crucial test of market demand Why Tesla analysts are mostly upbeat about earnings, but investors aren't happy 'If I was writing the checks at Coke, I wouldn't write the check for this,' one expert says about cane-sugar Coke The strategies outlined by Preston and Hanson assume aggressive growth — and require an extreme level of patience. Parents must start investing for their children as soon as possible, and the children must allow that money to grow, untouched, for five to six decades, leaning on the power of compound growth to gradually get to $1 million. Implementing just one of these strategies could get a child to $1 million — an amount that will, of course, be worth a lot less in 60 years than it is today, due to inflation. But if parents can implement more than one of the strategies, their kids could be on a path to being multimillionaires by retirement age. The current reality for most retirees, meanwhile, is nowhere close to this. While many people say they'll need more than $1 million to retire, the median household financial assets of Americans ages 65 to 74 totaled $120,300 in 2022, according to the Federal Reserve. Lawmakers who met with President Donald Trump last month are interested in getting Americans invested in the markets as early as possible so they can 'experience the miracle of compounded growth and set [themselves] on a course for prosperity from the very beginning,' according to a White House statement. Tax-deferred 'Trump accounts' for babies, a provision of the new One Big Beautiful Bill Act, will be seeded with $1,000 from the federal government for U.S. citizens born between Jan. 1, 2025, and Dec. 31, 2028. Family members and employers can make additional contributions, and the money must be invested in a mutual fund tracking a stock index. The funds can be withdrawn penalty-free when the owner turns 59½. MarketWatch asked financial planners whether putting a child on the path to being a millionaire retiree could really be this simple. While they agreed that extremely early investments on a child's behalf can help them reach this target with far smaller contributions than if they began investing after starting to work full time in their 20s, some said the dollar amounts parents put in would likely need to be higher than those outlined on the 'Money Guy Show,' to account for slower growth rates than those used by Preston and Hanson. They also noted that parents as well as kids must stay committed to this extremely long-term plan. 'This approach depends entirely on staying invested through multiple recessions, wars, bubbles and panics,' Christopher Haigh, a financial planner and co-founder of Iconoclastic Capital in Rochester, N.Y., told MarketWatch. Parents and their children must be psychologically ready to not touch that money for six decades, and their children need to be committed 'to not mess with the plan.' Dan Honsberger, a financial planner and founder of Reel Financial Planning in Virginia, told MarketWatch that the growth assumptions of the 'Money Guy Show' were aggressive, and in reality, it is likely that the 'savings levels need to be higher' to reach $1 million by age 65. He estimates parents' contributions would need to be closer to $10,700 at birth or $37,600 by age 18, amounts that would be far more challenging for the typical family to set aside. 'I think the message here is still good and valid,' Honsberger said. 'If you can set aside and invest a chunk of money early in a child's life, letting it grow over a long time period, it will set them up for success later in life.' Preston and Hanson declined to comment. Assuming investments made during the first 20 years of a child's life grow 10% annually, on average, until age 65, with returns compounded monthly (read more about the assumptions used on the 'Money Guy Show' here), parents need only invest $1,544 when their child is born. Over the next 65 years, that $1,544 investment has the potential to grow to $1 million, Preston and Hanson said on the show. 'Almost 100% is specifically coming from the growth,' Preston said. Parents who get started later will need to invest a larger lump sum, because the money has less time to compound. For example, by age 5, the initial amount needed to grow to $1 million by age 65 would be $2,541; by age 10, the amount needed would be $4,181. Such estimates may be optimistic. Honsberger said he would assume a lower annual growth rate of 7%, which would mean a lump-sum investment of $10,708 at birth would be needed to grow to $1 million by age 65. The assumption that the compounding would happen monthly — meaning the returns are added to the principal every month so that the next month's growth is based on the new, larger balance — is 'reasonable,' he said, because growth and dividends get reinvested and compounded more than once per year. It's possible the investment would grow at a faster rate than 7% annually, he said, 'but I just wouldn't count on it.' Most parents likely cannot invest thousands of dollars all at one time during their children's first years. Only about half of parents even have three months' worth of living expenses saved for an emergency, according to the Federal Reserve. Still, that does not mean they can't incrementally set the foundation for their child to one day have a $1 million nest egg. Instead of investing a large lump sum, parents can gradually invest a total of $9,274 by the time their children turn 18, averaging $15.44 per month over 18 years, according to Hanson. Again, the assumption is that investments made before age 20 will grow at an average annual rate of 10%. 'We're talking about maybe the cost of a coffee, maybe two coffees a month to get you or to get your child to millionaire status by the time they retire,' Hanson said on the show. Assuming a more conservative 7% rate of return through age 65, however, parents would need to invest much more, Honsberger said: $37,612 by age 18, which averages out to $87 per month from the time of the child's birth. These gradual contributions can give a young person a big head start on retirement. The median net worth of people in their 20s is $6,511, according to data from the financial-services company Empower, based on its 'typical dashboard user' this month. 'We love this strategy for its simplicity and teachability,' Gene Thompson, a financial planner at Iconoclastic Capital, told MarketWatch. Modest gifts from relatives can help kids reach this goal, and 'it also reinforces the lesson that small, consistent actions can lead to big results.' The key is not fizzling out before reaching the 18-year goal. Many financial experts recommend automating investments to ensure contributions are made without having to rely on a person remembering to make them. The 'Money Guy Show' goal is to have $9,274 invested for a child by age 18. Parents of teenagers who may be too far behind to save this amount on their own can still catch up if their teen pitches in by working and making contributions to a tax-advantaged Roth IRA, and the parents accelerate those savings by matching their child's contributions. If a teen can start working at age 15, for instance, they would need to invest $111 in earnings each month for three years, along with a matching $111 investment from their parents, in a custodial Roth IRA. (Be mindful that the total contributions to a Roth IRA cannot exceed what the teen earned at their job and are also capped at $7,000 for 2025.) By the time the child is age 18, these investments can grow to about $9,200. 'A dollar-for-dollar parental match is a smart way to create real skin in the game for the child and turn short-term summer jobs into long-term assets,' said Iconoclastic Capital's Thompson. He said a broadly diversified, low-cost exchange-traded fund that doesn't require constant monitoring, like the Vanguard Total Stock Market ETF VTI, could be appropriate for this strategy. Honsberger's more conservative calculations require investing $942 each month — or $471 each from the teen and their parents — in order to hit $37,612 by age 18. That annual total exceeds the yearly IRS limit for IRAs, so some of those contributions would have to be invested in other accounts. Younger generations are more open to discussing money and wealth than previous generations were, and about 45% of parents say they are encouraging their children to set savings goals, according to a 2025 NerdWallet survey. While many parents prioritize saving for college, some are considering their kids' financial needs beyond school, because a college degree does not guarantee financial security. MarketWatch recently spoke to financial planners about yet another strategy for parents to help their children retire with $4 million without needing a college degree. It involves letting them live at home for three years after they graduate from high school so they can invest $25,000 annually while working full time from ages 18 to 21. They would then allow those savings to grow for decades. More on this: A TikTok hack claims to help kids retire with $4 million — if their parents can stomach some major sacrifices Marc Schindler, a financial planner with Pivot Point Advisors in Bellaire, Texas, said that while the strategies presented on the 'Money Guy Show' can technically make a child a millionaire by retirement, the value of $1 million will not be the same decades from now due to inflation. Assuming annual inflation of 2.5%, in 65 years, $1 million would have the same value as roughly $200,000 today. He also cautioned that if a child is planning to attend college, investing money into a regular brokerage account could reduce the amount of financial aid a child is eligible for and therefore increase college costs. To help offset some of the effects of inflation, Schindler suggests putting as much money as possible into tax-advantaged accounts such as a Roth IRA or 529 college savings account. Up to $35,000 in a 529 plan can be gradually rolled over into an IRA over several years without incurring taxes or penalties under certain conditions. 'The tax benefits of a Roth IRA and 529 plan are far more compelling than a regular brokerage account,' Schindler said. It's also possible, as Honsberger pointed out, that parents would need to invest more than Preston and Hanson suggest in order for their contributions to actually grow to $1 million. Still, no matter how much parents can invest or what types of accounts they choose, what they can take away from these scenarios, Haigh said, is that 'compounding interest is really powerful, and early habits always win.' 'I'm already up $45,000 in about an hour' — Reddit traders boast about wins as meme-stock mania returns Dow cuts dividend in half in reaction to 'lower-for-longer' earnings The S&P 500 just did something it's only done four times in 50 years. Here's what happened next. Sign in to access your portfolio
Yahoo
14-06-2025
- Business
- Yahoo
Not Sure If You're On Track Financially? Here Are 3 Money Milestones Every 30-Something Should Aim For
Your 30s are a time of big changes. You're probably growing in your career, buying a home, getting married or having kids, said financial expert Bo Hanson, host of 'The Money Guy Show.' Along with those life shifts come serious financial decisions that can shape the rest of your life. In a recent video on their YouTube channel, Hanson explained that the financial habits and decisions you establish set the foundation for lifelong stability and wealth. And while that may sound a bit overwhelming, he broke it down into a few realistic goals to hit before you turn 40. Don't Miss: Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing — Peter Thiel turned $1,700 into $5 billion—now accredited investors are eyeing this software company with similar breakout potential. Learn how you can Here are the three biggest financial milestones you should aim for in your 30s: The first goal is to hit a net worth equal to your annual income in investable assets—not including home equity or emergency savings—by your early 30s. 'Crossing this milestone is an awesome first step for anyone starting out in their wealth-building journey,' the host said. This means you're likely living below your means and compound interest is starting to work in your favor. By the time you're hitting 40, the ideal target is to have three times your income invested. And it's not as far-fetched as it sounds. If you start at age 30 with zero savings and put away $941 a month with a 9% return, you could have over $150,000 by 40. 'That's literally three times a $50,000 income,' Hanson explained. Trending: Invest where it hurts — and help millions heal:. The $941 figure isn't random. It's the combined monthly amount needed to max out a Roth IRA — $583 per month — and a health savings account — $358 per month — assuming you're eligible. 'Combining these two accounts helps you build significant tax-free wealth and this greatly enhances your long-term financial health,' Hanson said. You can automate this savings amount or use payroll deferrals if your employer allows it. 'You have to invest the dollars. Saving in these accounts is only the first part of the equation.' This milestone shows you're going beyond just checking boxes like maxing out a Roth IRA and HSA. It's a sign you're serious about building long-term wealth. 'The discipline to consistently save a quarter of your income demonstrates that you're committed to building long-term wealth and prioritizing your future financial security over short-term gratification,' Hanson your employer offers a match, you might already be close to that 25% target without realizing it. Every 1% increase helps. As the host put it, 'You get to choose your hard today or hard tomorrow.' Once your saving habits are solid, it's time to protect your progress. That starts with a fully funded emergency fund, especially if your lifestyle has changed. 'In your 30s, things always go sideways,' Hanson said. Protection also means having life insurance if others depend on you, updating your will and adjusting your emergency fund as your expenses grow. 'Your 30s are when your financial life—and generally your life altogether—expand a great deal,' Hanson explained. 'It's important to make sure that those who depend on you are taken care of.' Whether you're ahead, behind or just getting started, the message is simple: start now, stay consistent and build from there. 'Every day counts.' Read Next:Deloitte's fastest-growing software company partners with Amazon, Walmart & Target – Many are rushing to Up Next: Transform your trading with Benzinga Edge's one-of-a-kind market trade ideas and tools. Click now to access unique insights that can set you ahead in today's competitive market. Get the latest stock analysis from Benzinga? APPLE (AAPL): Free Stock Analysis Report TESLA (TSLA): Free Stock Analysis Report This article Not Sure If You're On Track Financially? Here Are 3 Money Milestones Every 30-Something Should Aim For originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved.
