man and woman sitting on brown wooden bench

How to Make Your Child Retire as a Millionaire

How to invest for your child? Even better, how to make them retire as a millionaire? This is a simple way where compounded interest really takes place. Since the investing horizon is so big, compounded interest will do its magic.

And the best part: You only have to put money aside for the first 18 years of your child’s life. After that, the money will grow it self until your child reaches the retirement age of 65 in these calculations.

These calculations are based on the average past return of the stock market of 8%. This is an inflation-adjusted number, meaning the money will be larger after that time, but it will have the same purchasing power.

The investing strategy to make your child millionaire

This is a simple strategy to make your child a millionaire by the time of their retirement. It doesn’t require any initial capital, but it does require you to make monthly deposits to your child’s account.

The amount I’m using in this example is 200 dollars per month. It may seem scary, but let me explain what a huge impact just 200 dollars per month can have. The bright side here is that you “only” must put the 200 dollars aside for the first 18 years of your child’s life. After that, compound interest will handle the rest.

If you are not familiar with compound interest, I have a post explaining what that is. You can read it here.

Putting away 200 dollars monthly is 2400 dollars per year. 2400 times 18 years, which is the time you will put the money away equals 43 200. However, when you put the money directly into low-cost index funds, they will grow during these first 18 years as well.

With 8% interest rate, the money you have put away would with this calculation have grown into around 89 000 dollars. That’s over twice the amount of money you have put away yourself.

Example chart of this below.

Yearly contributionsAll contributionsWith 8% yearly growth
year 1                               2 400                   2 400                              2 400
year 2                               2 400                   4 800                              4 992
year 3                               2 400                   7 200                              7 791
year 4                               2 400                   9 600                            10 815
year 5                               2 400                 12 000                            14 080
year 6                               2 400                 14 400                            17 606
year 7                               2 400                 16 800                            21 415
year 8                               2 400                 19 200                            25 528
year 9                               2 400                 21 600                            29 970
year 10                               2 400                 24 000                            34 768
year 11                               2 400                 26 400                            39 949
year 12                               2 400                 28 800                            45 545
year 13                               2 400                 31 200                            51 589
year 14                               2 400                 33 600                            58 116
year 15                               2 400                 36 000                            65 165
year 16                               2 400                 38 400                            72 778
year 17                               2 400                 40 800                            81 001
year 18                               2 400                 43 200                            89 881
Chart showing the impact of investing compared to saving in time span of 18 years.

The impact of compounded interest on the long term

After 18 years of constantly saving to your child’s account, you no longer need to do so. Unless you want, but it is not necessary. From the year 18 until the year 65, the compounded interest will really begin to take off. The effects will be huge during a longer time frame, in this case 47 years. Keep in mind that during the period of 47 years, there have been no more deposits to this account.

Example chart of this below.

The next 47 years after initial 90 000 thousand what was achieved in the first 18 years.

As you can see from the chart, the account will hit the million dollar mark around the time your child turns 50 years old. In some cases, this can be enough money to retire and be financially secure for the rest of their life.

However, if they still kept all the money in the investing account, by the time they turn 65 and wish to retire, the account would have grown to more than 3 million dollars. That is inflation-adjusted money, meaning it would still have as much purchasing power as 3 million dollars today.

How to start investing for your child?

The first step is to find a broker that offers the possibility to create an investing account for your child. These can vary in different countries, so go through your local brokers. With the 200 dollars monthly contribution, your child would be financially very well off by the age of 65. The million dollars could have been achieved with a much smaller amount. The million-dollar mark can be achieved with as little as 70 dollars in monthly contributions until the child turns 18.

Going through the trouble of starting the account and getting a hang on how investing works will pay itself back. Even if it might seem like too much effort, think about what an impact it will have on your child’s life.

Final words

These calculations are based on the 8% average inflation-adjusted market return as what we have seen in the past. This, however, is not a guarantee of future returns. If you decide to try this strategy to build some savings for your child, for this to work your child should not make any withdrawals from the account until retirement.

Even the smallest withdrawal from the account at the age of 18 can have a huge impact on the outcome. I think this is one of the best ways you can invest in your child’s future.

This works both ways. If your child decides to continue adding 200 or 70 dollars monthly to this account, that as well will have an impact on the outcome.

Depending on what you invest the money into can also have a huge impact. Even if you chose something considered a safe bet, such as funds, there are differences between those as well. I have a post comparing low cost index funds and actively managed funds. You can read it here.

Even if you don’t have children, you may apply this technique to your own investing. I hope this was helpful to you, have a nice day.

This is not financial or investing advice. Past returns are not a guarantee of future returns. Always do your research before risking your hard-earned money.