I love looking really far down the road. I love projecting account balances in the future, and I love the idea of compounding interest.
I also like making money today – the ability to spend money on the things I want. As well as I have no problem paying a little extra for things if I can afford them. So if a few dollars saved me from worrying, it’s money well spent.
So I thought about, in order to retire comfortably at age 66, I’d need $4 million. Why that much? Because it’s such a huge number, that even with inflation and everything, there’s no way I could ever need more than that. It’s very possible I won’t need that much. But I know that in 40 years if I have $4 million in savings, there’s no way I won’t have enough money for everything I’ll want.
Calculating Retirement Savings
So working backward, with an 8% rate of return, I’d need $250,000 in savings by age 30 to hit those retirement savings. If I earn 8% every year, I’d have $367,000 at age 35, $539,000 at age 40, $1.16 million at age 50, $2.5 million at age 60, and just about $4 million at age 66. The “normal” retirement age will probably increase in the next 40 years, so I’ll still be retiring early at age 66.
$250,000 is not an easy target to hit by 30, but the benefits are enormous.
Retire Early and Enjoy the Benefits
There would be no need to save a dime for the rest of your life. Once retirement is fully funded, there’s no need to have extra retirement savings. As long as you earn as much as you spend, you can spend that money however you want. No more saving 20% for retirement, you can focus on education, the house, travel, or whatever else you’d like.
Instead of saving for huge goals, savings can go toward family vacations, education, and some of life’s pleasures. $250,000 is my goal for 30, and then that extra 20% (or more ideally, 60%) of income that goes to savings can go toward a house or kids.
Readers, what do you think? Is $250,000 a realistic goal? Are the benefits enormous enough to make it worth it?