Enjoy Now or Save for Retirement
When I talk to younger colleagues at work, the question “enjoy now or save for retirement” often comes up. When we hear about planning for retirement in our 20s most of us cringe. We immediately think about the frugality required to save for an unknown future which is decades away. How about enjoying life now AND saving for retirement? It does not have to be one approach or the other.
But, we all have to plan for that unknown future. With advancement in the medical field, the probability of a longer life, into our eighties and nineties, is a real possibility. For most of us, at one point, the paychecks will stop. So, we all have to plan for savings now, so that we can live comfortably later. Therefore, living below your means and some sacrifices are necessary to secure our financial future.
Save $5 to $10 million for retirement?
Suze Orman, a personal finance writer, suggested accumulating $5 to $10 million dollars for a comfortable retirement. Based on the 4% Rule (Trinity Study), it would generate $200,000 to $400,000 yearly income. Do we need $200k to $400k in retirement? Is this realistic?
Let’s crunch some numbers. For a 25 year old, planning to retire at 67, assuming 6% annualized return on investment, it will take approximately $2,300 of savings per month to reach $5 million. For a 30 year old, it will take $3,200 of monthly savings, and for a 40 year old it will take $6,200 of monthly savings. These savings rates may be realistic for high earning professions but not for everyone.
According to the National Association of Colleges and Employers (NACE), the average starting salary of a college graduate is around $50,000. Is it realistic to expect a college graduate to invest almost half of their salary to reach $5 million dollars?
You do not want to be so intensely focused on saving for retirement that you keep sacrificing, and your family feels deprived of having fun and misses out on building lifelong memories. Time is precious and lost time never comes back.
So where do you start?
We recommend saving 15% to 20% of your income and starting as early as possible to take advantage of compounding interest. With a $50,000 starting salary, 20% would be $833.33 per month. Assuming 6% annualized return and an investment of $833.33 per month from the age 25 to 67, the final value of the investment would be approximately $1.8 million dollars. Not too shabby! If you do not want to work full time until you are 67, consider increasing your savings rate early in your career or increase your household income to save more. Most importantly, start investing in your early 20s – while also having fun!
With a disciplined approach of paying down your debt (including your home-mortgage) before retiring, starting to invest early, and social security payments, you should be able to retire with a lot less than $5 to $10 million dollars.
After saving your set percentage, spend on things that bring you and your family joy and start building memories. For us, it was hiking in National Parks and traveling.
Enjoy now and save for retirement – find the balance between the two as both are important in our life!
What do you think? How are you balancing between enjoying now and saving for retirement?
Thank you for addressing a philosophical question with real numbers. Compound interest rocks. Now, I gotta figure out a way to save $6200 a month.
Engineers and numbers, what can I say! I do not believe that everyone needs the huge nest egg suggested by Suze Orman for comfortable retirement.
Very well written … Loved the pic of balancing … The title picture itself tells many thing … 👍🏻👍🏻
Thank you. The balance is the key!