Would another increase in the minimum wage be enough to make you a millionaire?
President Joe Biden has proposed raising the federal minimum wage from its current $7.25 per hour to a new total of $15 per hour.
Based on 2019 estimates of the Bureau of Labor Statistics, nearly 400,000 workers earn the federal minimum wage. A raise to $15 an hour would more than double what they earn. But would that be enough to potentially allow Smic employees to eventually become millionaires?
Could you save $1 million on a $15 minimum wage?
First, it’s worth considering whether it would be possible to become a millionaire while earning the current federal minimum wage.
A salary of $7.25 per hour while working 40 hours per week, 52 weeks per year, would translate to an annual salary of $15,080. Assuming people winning at this level could invest 10% of their annual income (an important and probably unrealistic assumption), it would take just over 50 years to grow a $1 million nest egg at an 8% annual rate of return.
Obviously, it’s unrealistic to expect this to happen for a number of reasons, including the fact that most minimum wage workers are unable to spend 10% of their earnings on investments. , because it is difficult to make ends meet on minimum wage.
But what if that minimum wage increases to $15 an hour? Full-time minimum wage workers would see their annual wages increase to $31,200. Investing 10% of that amount each year would push the timeframe for millionaire status to 41.25 years, which is still quite a long time. But if you start investing in your late 20s, you could be amassing $1 million by your mid-60s when you retire, even if you’ve earned that same minimum wage your entire career.
It should also be noted that many legislators want to index the minimum wage to inflation. If that happened, it wouldn’t simply remain stagnant for decades (the current federal minimum wage hasn’t increased since 2009). If workers whose wages are raised to the minimum now see regular wage increases (even if they stick to their minimum-wage jobs), savings could increase along with their wages. This could bring the time to save $1 million down to around 35 years more reasonable. Even those who wait until their thirties to start saving could become millionaires at the usual retirement age.
Of course, there is also another option. A worker who now earns $7.25 an hour and whose wages increase to $15 an hour does not have to increase his expenses by the full amount of the extra money. After all, if you’re used to a budget based on $15,080 in annual income, you’ll have a lot more money when your income hits $31,200. If you keep half of the supplement to improve your current situation and save the other half, you could invest $8,060 per year. At this rate, you would reach millionaire status in just 30 years.
None of these calculations take into account the tax advantages of investing for retirement — including the Savings loan, to which minimum wage workers would likely be entitled. They also do not include any employer correspondence that might be available to workers with a 401(k). But they show that whatever the merits or detriments associated with raising the minimum wage, raising it from $7.25 to $15 an hour would at least make it a little more feasible for the worst-off workers. paid from the country to amass a seven-figure nest egg. .