That’s the question tackled by Walter Updegrave in his CNN Money column, Ask the Expert. Here are the given facts: the individual is 25 years old, contributes 10 percent to his 401(k) and maxes out his Roth IRA. Will that be enough to retire in twenty-five years?
Walter thinks he has a lot of work to do. By retiring early, he won’t be able to take advantage of social security or penalty-free retirement account withdrawals right away. Considering there’s a good chance today’s 25-year-old might live to 100, that is a long time — 50 years! — to be relying on investment income.
The Expert cites a rule of thumb: for every $1 of income desired in retirement, $25 in savings is required. (Another way to say that is the assumption of a 4 percent safe withdrawal rate.)
The article finishes with a short blurb about healthcare, a significant cost to consider. I get the slight feeling at this rate I’ll be working until I’m at least 75.
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I think everyone thinks that way when they are young, but the prime years for earning is in our 40s and 50s, so I think most people should be okay as long as they save enough than.
When I first read this person’s question, I laughed. But after I thought about it, I figured he probably could retire, as long as he was doing other things besides saving. If he had a modest house that was paid for, and a low cost of living, he likely could retire as long as he keeps upping his savings and not increasing his monthly expenses.
I think part of the problem with retirment savings is that many people spend a lot of their income pre-retirement and want to maintain that lifestyle, as well as travel, and that just isn’t financially feasible for most.
So, if you are saving a large portion of your money pre-retirement, then not only will you have more, but you will be accustomed to a more sustainable standard of living come retirement time.
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