HomeRetirementThe Millionaire's Retirement Plan Is Backwards

The Millionaire’s Retirement Plan Is Backwards

Have you seen the latest article on Yahoo! Finance? I recently read “The Millionaire’s Retirement Plan,” where the author explains that to stay on track for retirement, 25 year olds should save $200 a month, 35 year olds $400 a month, 45 year olds $450 a month, and 55 year olds $600 a month until retirement.

I first got into personal finance by reading Yahoo! Finance articles a few years ago. Since then, they have added some great writers and started a Financially Fit section, which I think it pretty cool. It gives everything from tips on how to lower your cellphone bill to four ways to all sorts of retirement advice. So it holds a special place in my heart, but this article was way off base with me.

Sure, as you make more money, you are able to save more, but $200 a month seems low for a 25 year old. That comes out to just $2,400 a year.

Ideally, I’d tell everyone to flip this plan on it’s head and reverse the savings patterns. By investing $600 a month as a 25 year old, $450 a month as a 35 year old, $400 a month as a 45 year old, and $200 a month as a 55 year old, you’d be almost twice as rich at age 65. That’s what I’d do (and what I am actually doing), but there’s one glaring mistake about their plan.

It doesn’t take advantage of time!

A smarter idea? Max out your Roth IRA when you are young. Invest $5,000 a year. That’s a little over $400 a month. Sure, for some people it would require diligence, but the benefits are tremendous. If you made this change for ten years (and then followed their plan for the next 30 years), you’d be over $400,000 richer.

That’s right. Invest $2,600 extra for 10 years, and you’ll get $400,000. Do I sound like an infomercial? It almost sounds too good to be true.

Or, you can think about it this way. By investing under my plan, you’ll be able to retire on the same amount of money 4 years earlier. Pretty sweet, right?

This article completely misses the time value of money factor. Investing when you’re young is so much more valuable than if you wait until you’re older.

Yes, you’ll make more money when you’re 35 or 45, but you’ll also have a ton of responsibilities. You’ll be paying for a house, kids, schooling, and tons of things you never planned for. When you’re young, you’ve got an apartment, maybe a car, and some extra spending money, that’s it!

If you make it a priority to save, you’ll be way ahead of the game! I won’t talk to the fact that a million is becoming harder to retire on.

Readers, do you think $200 a month is enough? Should we flip this thing on it’s head?



  1. $200 a month is enough for a person on his early twenties; most of us do not have that $200 to start with so if you can spare it, save and invest it, good for you. I would save more if i could because financial prudence is high on my to do list; i dont want to be 50 and still have no financial security and nothing to show that i was ever young and energetic

  2. I agree totally. The idea of being able to save more as you payoff your home, and have less need for new “stuff” may be true. Also your income hopefully will increase as you gain experience and move up in your career.

    However, compound interest and time is your best asset-so sacrificing when you are young will pay huge “DIVIDENDS!”

  3. $200 is NOT enough, obviously… but getting that age group to save anything is hard enough so I think Yahoo is trying to appeal to that reason. I’m 25 and I max out my 401(k) at the $16,500/yr and an additional $400-500 in a savings account, and STILL don’t feel like i’m saving enough.

    • @Danielle, That’s amazing, you have no idea just how far ahead you are. I think it’s probably more important that you have the habit than the actual dollar amount. By saving now, there won’t be too much that will derail your awesome plan to be in financial control. Good job!

  4. Your plan seems more financially sound. However, when I was 25, I barely had enough money to cover rent, and that was with working two jobs around the clock. There’s no way I could have scraped together $400 a month for retirement. I’m only now able to invest about $300 a month towards retirement (hopefully this will increase in the next year or two.) Your plan sounds great, but would be hard to realize for many young people, which would discourage them.

    Actually, a percentage of income might be a better solution overall. Saving 10-15% of your income may be much more doable than trying to meet a set figure since everyone’s income varies. For instance, 15% of $30,0000 is $4,500 a year,which comes to $375 a month. Or 10% of this same amount is $3,000 a year or $250 a month. Perhaps a better approach to getting people to save money.

  5. I agree that $200 sounds very low although I also hear what kt-lifedividend is saying to a point. I think the big mistake is ramping your salary and standard of living as you earn more. Peoples salaries tend to rise with time as they gain more experience and so if people simply held their spend (or at least ramped it at a lower rate than the increase) and saved the rest then retirement (or at least work becoming optional) would be closer than I think some people realise.

    Personally I’m now at the point in my mid to late 30’s where I am saving on average 60% of my net salary. I’ve reached this point by living frugally. Compared to my peers and friends I’m also not that much different. Sure I don’t have the 50″ LED/LCD TV, sure they see me in the same shirts at social events rather than always being in the latest fashion, sure I rent rather than having a massive mortgage but I think my enjoyment in life is every bit the same. The added advantage is that every month when I calculate my financial situation and post it on my blog a little smile appears knowing that I am one month closer to optional work.

  6. Whoever made up those numbers probably just set a fixed target (a million bucks) and divided up contributions based on how many years of work the person still had to perform under the assumption that everybody retires at 65.

    Obviously I am a strong proponent of accumulating ALL of your retirement savings before age 30 which means saving something like $2000/month or more.

    Then you have the rest of your life to enjoy.

    • @Early Retirement Extreme, Damn, that’s a bunch for young people, even I can’t come close to approaching that. But I love the idea. I just hope that I can continue my savings patterns for years to come!

  7. As you age, you will likely have more cash flow to allow investing larger amounts each month, but in a perfect world, nope, it’s not the most effective way to build wealth.

  8. Was the point of the article to show you can invest less if you start early? Just a possibility and I agree it’s a lot easier to save early rather than latter when you have bills

    • @Benjamin Bankruptcy, Nope, it was just a retirement plan for people who want to become millionaires. I agree it’s easier to save when you start earlier for two reasons:

      1. Compounding Interest is frickin amazing.
      2. More importantly, you are already in the habit so it’s not a burden!

  9. Nothing is set in stone. And anybody who says save X amount and then retire doesn’t really know for sure.

    I say save as much as you can, with the minimum of 20% every year, and pray for the best!



    • @Financial Samurai, So a 25 year old making at least $25,000 should be fully funding their Roth IRA. I agree, setting number goals are wrong, but getting a headstart is so important!

      • @Daniel-san, the $200/month is a good goal, b/c it is very feasible. You know, don’t go out for 3 or 4 nights, and voila, you got the extra $200 bucks.

        Maxing out the IRA and the 401K should be a given. After that, then try and save $200 or more a month should be the goal, b/c that is tangible money you can touch. Your IRa and 401K could literally go to zero!

  10. I like this idea, the more you can dump in while you are young, the better. (Obviously) but just because you have more time doesn’t mean you should hold up. You should be attacking this thing full throttle the whole way and not use time as a barrier. Never leave for tomorrow what you can do today, plus when you get older and make some more cash, you can invest it in other things like real estate if your long term market investments are buttoned up.

  11. This plan seems easier to follow for a single person, or a married couple that actually have been able to establish themselves. What about the young married couple that struggles financially for the first few years?

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