The ideal level of wealth in the U.S. may be between $2 million and $5 million.
Which sounds like an end to your early retirement dreams, right? A savings target like this can feel so far out of reach. You’ll need to save for decades. You may never leave that job you dread.
But there’s more than one way to navigate the fraught relationship between wealth and time. Personal finance author Nick Maggiulli writes about an early retirement alternative:
“The idea is to front-load your retirement savings early in your career and then allow those investments to grow without needing additional contributions.
…You save aggressively in your early working years until your portfolio reaches a point where its expected growth would meet your future retirement needs. …Once you hit this number, you can then reduce or even eliminate how much you save each month. At this point, the only thing you need to worry about is covering your current expenses.”
For example, let’s assume you need $3.5M to fully retire at age 65. (Nick’s calculations assume 3.5% average annual growth, after inflation).
Here’s how much money you would need to save by different age milestones:
- Age 30 = about $1.05M
- Age 40 = about $1.48M
Then once you hit these numbers, you stop saving additional money. You just keep a job until retirement to cover your living expenses.
For Millennials who save 15% or more of their income, this would be a huge win. You might even be able to accept a lower-paying job. Rather than retire early, you could choose work you love.
This isn’t a financial hack. But the math – more specifically, the impact of compounding growth over time – may surprise you. Your entire working life doesn’t need to be a financial sprint.
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About the author: Kevin Mahoney, CFP®
Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to free personal finance tips written specifically for Millennials. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your friends and family. And then when you’re ready, please send me your thoughts & questions!
