On the surface, the idea that you can save $1 million for retirement when you’re pulling in a minimum-wage paycheck seems impossible, but it can be done.

Consider the following real life example. In 2014, a Brattleboro, Vt., janitor and gas station attendant named Ronald Read died at age 92, but not before he quietly saved $8 million. When the will was finally probated, neighbors learned that the unassuming man driving to the store in his second-hand Yaris had left $6 million to his local library and hospital.

Here's how anyone earning a modest income has a shot at retiring with $1 million saved.

Key Takeaways

  • To save $1 million for retirement making minimum wage, you’ll need to start early to benefit from compounding.
  • Take advantage of matching contributions to an employer-sponsored plan if you have access to one.
  • Choose the right investments—such as stocks with a solid track record that have historically paid high dividends—and hold them for the long term.

Start Saving Early

If you want to make it to the $1 million mark on minimum wage, you need to get a head start on saving as soon as possible. People who start saving for retirement in their teens or 20s are going to have a much easier time reaching their goal than those who wait until their 30s or 40s.

When you have a longer horizon until retirement, you have the power of compound interest on your side. Essentially, this means you earn interest on your interest over time. If you’re investing steadily and earning a decent rate of return, the compound interest has a significant impact on the sum you will have when you retire.

"If you start early, your chance to become a millionaire is possible even on a small income. Putting away what families spend on cell phone or cable bills every month can get you there. Small contributions do make a difference," says Patrick Traverse, founder of MoneyCoach in Charleston, S.C.

Here’s an example. Let’s say you invest $5,000 in a Roth IRA at age 18. You invest an additional $200 a month until age 66, earning a 7% annual rate of return. By the time you retire, your balance would be just over $1 million. By comparison, someone who starts saving at age 30 with the same $5,000 initial investment and $200 monthly investment would only have around $439,000 at age 66. The longer you wait, the less savings you will have in the long run.

Take Advantage of Matching Contributions

If you’re fortunate enough to be working in a minimum-wage job that offers a 401(k) or a similar employer-sponsored retirement plan, you’ve got a huge advantage when it comes to saving. That’s because you may be able to boost what you’re putting toward retirement through an employer match.

Roth IRA contributions are made with after-tax dollars and, unlike traditional IRAs, withdrawals are tax-free in retirement.

Let’s look at another example. Assume that you’re making $15,000 a year. You contribute 15% of your pay to your 401(k), and your employer matches 100% of what you put in, up to the first 6%. If you do that from age 25 to age 65 and earn a 7% annual return each year, you’d have more than $650,000 when you retire.

Granted, that’s short of $1 million, but if you’re really industrious and able to sock away extra money into an IRA, you could make up the difference. If you get a $2,000 tax refund every year and park that in a Roth for 40 years, for instance, that’s another $427,000 you’d have for retirement, assuming a 7% return.

Choose the Right Investments

The scenarios listed above assume a best-case scenario, where you’re investing a substantial percent of your pay and earning decent returns the entire time. As no one can predict with precision what the market’s going to do, however, you have to be strategic about how you invest.

Focusing on stocks involves taking on more risk, but it’s also the way to get better returns. Bonds are safe, but they’re not going to generate double-digit earnings. If you’re hesitant to buy individual stocks, look for ones that have a solid track record of paying out generous dividends to their investors. If you’re not sure which ones are the best, start with the dividend aristocrats, which are stocks that have increased their dividend payouts for 25 consecutive years or more. 

Ronald Read's investments included AT&T, Bank of America, CVS, Deere, General Electric, and General Motors, many of which he had held for decades. Though they had no idea of his investments, friends did remember that he read The Wall Street Journal every day.

Aside from zeroing in on investments that are likely to have better returns, you also need to be mindful of their cost. Exchange traded funds (ETFs) are a great low-cost alternative to actively-managed mutual funds, which have higher expenses that can take a bite out of your earnings over time.

The Bottom Line

Retiring as a millionaire when you make minimum wage isn’t impossible, but you do have your work cut out for you.

"It is only impossible because everyone tells you that it isn’t possible. Remember, it was said once that a human being could not run a five-minute mile…now it is done routinely," says Scott A. Bishop, MBA, CPA/PFS, CFP®, partner and executive vice president of financial planning at STA Wealth Management in Houston, Texas.

Getting started sooner rather than later, researching your investment choices thoroughly, and putting free or found money to good use whenever possible can put you firmly on the path to growing your net worth.