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April 28, 2008


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The real problem with this post is what the article barely brushed over: inflation. $1 million, by the time I plan to retire (at 4% annual inflation), will only be worth $200K in today's dollars. Hardly enough to retire on. My own retirement number is about $10 million. So I would need to save $20500 a year for 10 years. Certainly doable, but not as easy as the article makes out sound.

Most 20 somethings can't afford $20K/yr for investments, but they should. The problem starts right after graduation. They come into high paying jobs, and start to live that lifestyle. What we should do is continue to live the college lifestyle, invest that $20K, and anything leftover, then you can start spending $ on useless things.

I realize this will be extreme for many (i.e. if your starting salary is less than $40K), but think of how much our cost of living was in college... mine was around $10K a year including bar tabs. I also realize that there are many, many factors, but bottom line is that this is the easiest way to start.

Note... I did not do this, but I wish I did. I started living the yuppie lifestyle. After doing so, it is very, very difficult to go back to college cost of living.

Rick, you're right. But probably the biggest hit to this number will be taxes. No one can predict what taxes will be in the future and what bracket they'll be in (which is why I like paying taxes now). You know Uncle Sam will want his cut. Then you have to consider other eroding factors such as health care costs, planned obsolescence, technology change, etc. 1 million dollars doesn't sound like a big number at age 65 anymore.

Well, that is a good number to look at. I am a few years past that, and I have never maxed anything out. However, I have been contributing since a few years before I hit that mark. I am trying to juggle the idea of maxing out my 401k and HSA this year, as well as putting $5k in a 529 for my wife. I have a unique opportunity that will allow me to double my salary (at the expense of doubling my work load); this opportunity could last a month, the remainder of the year, or a few years... My wife is wanting to go to a very expensive school so she can get accepted into a program that is under such high demand that there is competition between students that have a 4.0 GPA. It is going to cost $50k for the two-year associates program, including tuition, books and fees, not to mention child care. So, I think she will be able to get some grants for the coming school year, as well as some loans, and the rest will have to be covered out-of-pocket. This is something she really wants to do, and she has been putting it on hold for several years because of our unwillingness to compromise on childcare (we didn't want anyone else watching our children, but we are going to send our youngest to Pre-K this coming year), and my education.

We would like to still be able to save for retirement and healthcare, so this is the struggle.

My wife, 25, and I, 24, both nearly max out our 401k and fund our IRAs. We have been doing this for nearly 3 years now. At this rate, just our retirement accounts will provide about 8-10 mil at 65. Thats not including the 2-3k we save a month.

Well, of course, the implication is that if you don't max out your accounts, saving at least $5k/yr from the period you get out of college (most likely around age 23) will yield approximately the same result. Which is much more doable. Actually, I sort of like that number since that's the amount that can be maxed out in a Roth, which would mean $1M tax free, though obviously any 401k w/match should come first. I haven't been able to bring myself to max out both accounts any year I've worked, but at age 27, one year older, I have $29K invested, which by my basic math should get me to that $1M level anyway.

I agree with Jason. You don't have to invest $20,500 all in one year; the point is that if you have appx $20,500 invested by the time you are 26 (and you leave it there) then you can quit investing forever and and still hit $1MM by a traditional retirement age.

It's a powerful concept, but not meant to be taken literally; if you're the kind of person who is going to set aside $20K in your 20's, you probably aren't going to just quit saving after that anyway. :)

I think it is totally do-able, though. If you have decent wages, your company matches your contributions, and you put 5%+ into a 401k from day one out of college, it's very possible to have at least $20K invested by 26.

That shows the power of compound interest. But because inflation is working against you, you need to make more then 10% a year to be able to live comfortable when you retire. Which is not hard to do.

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