I was listening to one of my favorite podcast on money by Paul Merriman and he focused on a topic I think a lot of us Millennials think about…early retirement. We Millennials are a ways away from retirement, which means, lucky for us, we have tons of time to save and let compound interest work in our favor. I have always targeted age 60 as my goal retirement age. And even that seems “early” in comparison to when most people retire these days. The average retirement age is 63.
I am in my early 30’s now and have been saving for retirement now for 10 years. I track my retirement progress religiously and I am always trying to push myself to save more for retirement. Paul has inspired me to rethink my goal retirement age. Instead of retiring by age 60, I am now moving my ideal target retirement date to 55. I am still 20+ years away from this age so I have more than enough time to achieve this goal, if I save diligently.
A couple years ago I put together a retirement projection spreadsheet, based off my current savings, savings rate, and projected annual rate of return. The below projections are for both my wife and I and what I anticipate we may like have in retirement savings by age.
Retire by 50?
– 7% return = $1 million
– 8% = $1.25 million
– 10% = $1.68 million
Retire by 55?
– 7% return = $1.63 million
– 8% = $1.96 million
– 10% = $2.85 million
Retire by 60?
– 7% return = $2.4 million
– 8% = $3 million
– 10% = $4.79 million
Retire by 65?
– 7% return = $3.5 million
– 8% = $4.58 million
– 10% = $7.95 million
So what jumps out most about these numbers? To me its two fold. The first is that obviously the longer you work the greater your savings compound to. Case in point, with a modest 7% return I should have just barely $1 million dollars by age 50. But if I keep working and allow my savings to continue to grow, by age 65 I may have a $3.5 million nest egg. That’s 3.5x more! The second biggest take away from these numbers is the difference 1-2% points can make on your retirement portfolio. At age 55, a 2% difference in return means nearly $1 million dollars. By age 60 that jumps to a $1.8 million difference. Worse yet, at age 65 a 2% difference is more than $3 million dollars.
I want to retire by at least 55
So the obvious answer is save longer and shoot for higher returns, but that is easier said than done on the returns side of things. And I’m writing this article because I’m broadcasting my goal of retiring at least by the age of 55.
How to retire in 30 years, guaranteed
Paul Merriman’s premise is that you can retire in 30 years if you manage to save $12,500 per year for 30 years and receive an annual return of 12%. Saving that much each month for 30 years actually isn’t all that challenging, as it equates to you and your spouse each saving $520/month towards retirement. The 12% return is what is tricky. However, if you miss 12% and hit 10%, you’re still looking at a $2 million dollar nest egg. Pretty good consolation prize. The other option is to work slightly longer or simply save more than $12,500/year. For a couple earning $100,000 annually, that is only 12.5%. I will strive to save 15-20% to guarantee (more or less) my success. If you upped your savings to 15% you would end up with $3.6 million (with a 12% return) or $2.4 million (with a 10% return). Even an 8% return would still net your $1.7 million.