Baby millionaire

We often hear about trust fund babies. How can you create them? Clearly seems easier to create if you are rich, but how much is required? 

Let`s explore how much you need to invest in a baby to make him a millionaire in today's dollar.  Let's use a portfolio returning 7.1% and a 2% inflation.  At this rate of return, we need to put aside for the baby $11,600 to make him a millionaire at age 65! That is before inflation. Net of inflation, 1 million in today money, it would required $41,900. 

Amounts to get 1 million$ at ag 65 with a return of 7.1% and 2% inflation.  

RESP

In Canada, we can invest in a RESP for the children. We can contribute up to $2,500 a year to qualify for 20% extra from federal. Said otherwise, we can invest $3,000 per year. For Québec and Saskatchewan resident, we also qualify for an extra 10% from the provincial government. In short, getting to invest $3,250 per year. In British Columbia, there`s a one-time contribution of $1,200. 

Table of accumulated Balance at 65 if we maximize the RESP for a single year; for 10 years; for 18 years. On the right, if we are in Quebec or Saskatchewan; on the left in other province. .

In other word, if you max out RESP, you have given your child a million at age 65!

If you max out RESP, you have given your child a million at age 65!

Can we do better!?

Say that you are a new father and want millionaire grandkids. Instead of looking at only a 65 years horizon, couldn't we invest 30 years earlier when your kid are still baby's? Sure, this would cost you just a quarter of the above. But no, only takes $1,500 to grow to a million. If we want a million in today dollar, it would require $9,700

Amount to get 1 million in 95 years (65+30) with a return of 7.1% and 2% inflation 

Assumption

The rate of return impact is tremendous on these calculations. Changing it to 8.0%, it reduces by more than half the requirement to get a million. An alternate conclusion is also that if our fees are 0.9%, than it would eat more than half of your balance at the end of your life.  

Required amounts to get 1 million at age 65 with a return of 8.0% and 2% inflation