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The Millennial’s Guide To Drafting Retirement (The Earlier You Start, The Lazier You Get To Be!)

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Retirement is a funny thing. Especially to a young person. It’s so far away it just seems completely out of character as a young person excited about the next 40 years to think about the 40 years after that. As a twisted turn of fate, it also turns out that the earlier you start, the less work you actually have to do. That’s why if you despise saving and want to use all your money today, you shouldn’t. Being an active saver/investor now actually gives you freedom to be lazier later.

As someone in their 20s, you’ll reap larger rewards if you can contribute even a small amount today and continuing forward because you have the time to wait for it to grow. Wait ten years, and you’ll have to contribute considerably more to make up for lost time. If you haven’t seen this very well known example already (and honestly I love revisiting it because it’s just shocking), there’s the example of 3 investors:

Susan who invests $5000 a year for 10 years from age 25 to 35.

Bill who invests $5000 a  year for 30 years from age 35 to 65.

Chris who invests $5000 a year for 40 years from age 25 to 65.

Who comes out on top? Chris ends up with $1.1 million. Susan ends up with $602k. Bill ends up with $540k.

Bill ended up with less money even though he invested 100k more than Susan and only 50k less than Chris! He also invested for 20 years longer than Susan! The fact that he started 10 years later required him to put in way more effort just to finish behind the person who put in some work up front and then did no work for the next 30 years. To retire with more than Susan, he actually has to invest more than $5000 annually for 30 years. So if you really want to be lazy, just start now.

And if you don’t want to be lazy at all, then I’m sure I have no convincing to do when it comes to just saving and investing steadily for as long as possible. Chris reaped all the rewards from doing both the work up front and continuing to do the work until retirement.

Why Prepare Now?

If the above example didn’t convince you that you’ll actually be more financially well off if you start now, here are some other reasons:

  1. Pensions have become a rare relic of the past. Pensions were provided by employers based on years of service, while the employee didn’t have to do any saving themselves (at least for retirement).
  2. Social security is currently only fully funded until 2034. It will be 3/4 funded after that for some time. The government may rescue the program, or the well may run dry when we need it.
  3. 45% of Americans surveyed in 2017 plan to retire after 65 compared to 14% surveyed in 1995.
  4. Many of us learn financial management from our parents, but our parents may have relied on retirement accounts of the past like pensions and may not be equipped with the knowledge to prepare us with realistic advice on financial preparation.

So who can we rely on to ensure our retirement will go smoothly? I look to myself. At 27, I don’t expect to have everything planned. Right now I’m still working on my rough draft. It’s easier to spruce up a draft then to write a perfect paper from scratch the night before it’s due. (Except it’s not like writing a perfect paper the night before it’s due…it’s like writing your graduate thesis the night before it’s due…)

My rough draft involves:

  1. Determining how much money I spend now annually
  2. Projecting how much money I will have to spend in retirement annually based on how I spend now
  3. Determine what age I want to retire (how many years until I retire)
  4. Calculating the total I’ll need saved to comfortably withdraw my projected annual retirement spending (accounting for inflation)
  5. Calculate the amount I need to save/invest monthly until I retire to hit the projected total
  6. Assess other factors that could be fleshed out more specifically as retirement approaches

Figure Out How Much You Spend Annually

This step is pretty simple if you track your money with something like Mint.

You can also try to calculate how much you spend annually simply by taking your annual post tax income and subtracting any post tax amount you set aside in savings/investments. We use the post tax income and post tax savings because we can’t spend money that’s taxed.

The important thing with this quick and dirty method is to subtract the amount you set aside THIS YEAR, not the rolling total you’ve saved.

Project Money Needed Annually Based On Your Spending Today (Because 65 Ain’t As Old As You Think)

Project the annual amount you’ll want to live on based on how you’re spending today, with realistic cuts and additions.

I definitely encourage tracking your money so you have a good idea what expenses you have now that don’t need to be factored into your retirement expenses. It’s also great to know which expenses may increase in retirement.

As a millennial in a high cost of living city, I have a couple large unknowns that are difficult to plan precisely for:

  1. Housing (When Will I Buy A House/How Much Will It Cost?)
  2. Children (When Will I Have Kids/How Many/How Much Will College Cost?)

If I see myself staying in the Bay Area, I don’t see myself purchasing property for almost 10 years. That would make me 37 when I presumably take out a 30 year mortgage. That means I’ll still be paying it off in retirement if I made no effort to pay it off sooner.

If I have kids, my mortgage may be significantly higher than the rent I pay currently to share a 1 bedroom apartment. I build in a healthy amount of overhead for these unknowns in my projected number because all I have is my best guess for now.

65 may seem old as hell right now, but it’s not that old. Your life isn’t over at 65! The life expectancy of men after 65 is 18 years. The life expectancy of women after 65 is 20 years. That’s 2 more decades! That is ~25% of your life you might be dismissing. And who knows by the time I retire, the life expectancy may be even higher.

There is so much more to do after 65. Madonna Buder is a Catholic nun who started training for triathlons at 48. She broke the world record for being the oldest person to complete an Ironman race at 82.

Don’t just think you’ll be old and frail by the time you retire and you’ll have no desire to do anything or spend money. There are still going to be things you’ll want to experience even if you won’t be taking fresh faced selfies to post on Instagram. It’s human nature to desire new things and experiences. Your interests may change, but the fact that they will cost some money probably won’t.

Determine Your Retirement Age

Why is it important to know when you’ll retire? A couple pretty straightforward reasons:

  1. It allows you to figure out how long you have to save. The longer you have to save, the more you can save.
  2. It allows you to figure out where inflation will be at the time you retire. The earlier you retire, the less inflation you have to account for.

“Official” retirement age is 65 because this was the age you could start receiving full social security benefits, though this number has been bumped up to 67. 65 is the age you’ll be eligible for Medicare. 59.5 is the age you can start withdrawing from your 401k and IRA without penalty. These should all be factors in determining when you’ll be retiring.

Calculate The Total Money You’ll Need Saved

What are we talking about when we talk about “being able to retire”? “Being able to retire” is the equivalent of having enough savings and investments to stop working forever without running out of money to live on.

To determine this magic number, we can use a retirement calculator. There are tons of retirement calculators out there. I really like this one for seeing the year by year break down of where my money will be (and how much it’ll be worth due to inflation). It’s not the most beautiful calculator, but I think it’s super informative. I highly recommend reading the blurb below the calculator inputs to gain some insight on how you should be thinking of withdrawal. We have to account for the basics:

Nest Egg Starting Balance

The starting balance is the amount you’ll have saved that you plan to live on for the rest of your life.

Nest Egg Rate of Return

Your nest egg is usually kept in investments or interest bearing accounts. Since you’re only withdrawing a small amount of money at a time from your nest egg to live off, the rest of it will continue to grow. My hope is that it will grow faster than I’ll be taking out of it.

Rate of Inflation That Will Eat Away At Your Nest Egg

Inflation causes prices to rise every year. That means your money is always losing value. I would need ~$1400 today to purchase what I could purchase for $1000 in the year 2000. Similarly, as prices rise in each year of retirement, you need to withdraw a little more than you did the year before to live at exactly the same comfort level.

The Fun Part: Running Projections

When I first ran through one of these retirement calculators…it was pretty confusing. I generally like to plug and chug numbers until I see my projected annual spending pop up. There are 2 methods I’ve thought to use when running retirement projections.

  1. Run projections with non-inflation adjusted nest egg target and inflation adjusted return rates.
  2. Run projections with inflation adjusted nest egg target and non-inflation adjusted return rates.

I’ve really enjoyed the second method just because I love seeing the ultimate effect inflation will have on money…specifically the value of money.

When it comes to how much I’ll withdraw each year, I stick to using the 4% safe withdrawal rate as a baseline.

The 4% safe withdrawal rule was determined through simulations run on historical returns of 50% equity/50% bond portfolios. It was determined that a 4% initial withdrawal from the portfolio had a very high likelihood of lasting 30 years in retirement.

Let’s pretend I want to live off $40,000 a year. $40k is about the amount a retired household spends per year. Say I want to retire when I’m 65, I’m 27 now, so I have 38 years until retirement. Say I think I’ll live 30 years after I retire. I’ll use 8.3% for the annual interest rate you can earn based on Vanguard’s 90 Year Averages of a 50% equity/50% bonds portfolio. I use a 3.3% inflation rate based on the average inflation rate over the last 100 years. The numbers I plugged into the calculator were:

If I take a look at the year by year numbers, I can see a 4% withdrawal rate, at first glance, will return plenty of money to live off of. The Remaining balance actually grows faster than I’m withdrawing, so every year my balance actually increases.

In 2055, I would be withdrawing $40,000, but I would be earning $79,680 from growth in my portfolio. At the end of my 30 year retirement, I’ll actually have almost 4x more money than I started out with! It seems like retiring with $1 million is more than plenty.

But I think it’s irresponsible for finance articles to point out the $1 million milestone just for the purpose of illustrating the power of compounding. It’s always been the symbolic holy grail of financially “making it”, as though accruing $1 million will set you up for life. It’s just not the case for those of us who will be retiring 40 years from now. The lofty number doesn’t take into account any specific person’s financial goals or their timeframe.

There are complications with the $1 million milestone. The most shocking thing to me is the effect of inflation. Even though 4% of $1 million is $40,000 exactly, just as I planned for…$40,000 in 2055 is really only worth $11,647 today. That doesn’t even cover my half of the rent for my 1 bedroom! I want to make sure I’m withdrawing the equivalent of $40,000 in 2055.

Unfortunately for me, if I want to spend $40,000 a year in 2017 dollars, I’d have to initially withdraw $138,000–that’s 13.8% of my $1 million nest egg. And even more unfortunately, the money will only last me 8 years (see sad projections below).

Well, that’s a bummer. I’m going to be 73 and going back into the workforce as a part time Lyft driver (but hey, their marketing video makes being a granny driver look heartwarming and adorable). If I’m aiming for $40,000 a year and I want to make it last, I’m going to have start with a significantly larger nest egg.

After bumping up my starting nest egg to $3,450,000 and running with a 4% withdrawal rate, I’m able to hit my $40,000 withdrawal requirement. Again the 4% safe withdrawal projects my portfolio growing to almost 4x the amount I started with.

Now this really begs the question, can I actually withdraw more from the very beginning? Why do I want to die with $12 million in the bank when I could be living it up like a queen?

I have a couple additional scenarios.

  1. I outlive the 30 years I’ve calculated for but don’t change my withdrawal rate.
  2. I outlive the 30 years I’ve calculated and I change my withdrawal rate to withdraw more initially.

Outlive the 30 years I’ve Planned For

Let’s start with outliving the 30 years I’ve inputted into the calculator. 30 years in retirement would put me at 95. So what if I wanted to live 100 years after I retire? Who knows what wild life preserving technology will be around by the time I’m a granny?

If the rate of inflation and rate of return stayed the same, I’d manage to become a billionaire if I lived another 100 years after turning 65! By then, being a billionaire will also mean much less than it does today. I also find it crazy that 137 years from today, ~$3.5 million is going to be equal to $40,000 today. You can see the results in 10 year increments below:

  • Retire in 38 years
  • Spend 100 years in retirement
  • Amount Saved at Time of Retirement = $ 3,450,000.00
  • Annual Interest Rate = 8.3% (compounded Annually)
  • Annual Inflation Rate = 3.3%
  • Amount Withdrawn (at the beginning of) each Year = 4% of the initial balance and adjusted annually for inflation
Year Age Beginning Balance Withdrawal Amount Today’s Equiv. $ (2017) Earnings Remaining
2055 65 $ 3,450,000.00 $ 138,000.00 $ 40,185.27 $ 274,896.00 $ 3,586,896.00
2065 75 $ 5,158,702.44 $ 190,933.57 $ 40,185.27 $ 412,324.82 $ 5,380,093.69
2075 85 $ 7,992,831.44 $ 264,171.23 $ 40,185.27 $ 641,478.80 $ 8,370,139.01
2085 95 $ 12,957,320.00 $ 365,501.14 $ 40,185.27 $ 1,045,120.97 $ 13,636,939.83
2095 105 $ 22,141,729.28 $ 505,698.83 $ 40,185.27 $ 1,795,790.53 $ 23,431,820.98
2105 115 $ 39,989,016.48 $ 699,673.08 $ 40,185.27 $ 3,261,015.50 $ 42,550,358.91
2115 125 $ 76,091,004.76 $ 968,051.31 $ 40,185.27 $ 6,235,205.14 $ 81,358,158.59
2125 135 $ 151,364,638.21 $ 1,339,373.16 $ 40,185.27 $ 12,452,097.00 $ 162,477,362.04
2135 145 $ 311,721,384.58 $ 1,853,125.40 $ 40,185.27 $ 25,719,065.51 $ 335,587,324.70
2145 155 $ 658,353,569.13 $ 2,563,940.98 $ 40,185.27 $ 54,430,539.14 $ 710,220,167.29
2154 164 $ 1,309,882,286.60 $ 3,434,084.02 $ 40,185.27 $ 108,435,200.81 $ 1,414,883,403.39
Totals $ 103,315,418.02 $ 1,514,748,821.41

I’m just wowed by the power of time and the power of compounding.

It’s like hearing someone’s great grandparents telling you $40,000 today being the same as having $1600 in 1913. The idea that my monthly rent today is what people lived off of in an entire year in 1913 is pretty crazy.

Because of inflation, the value of being a millionaire today is less than it was 10 years ago, and even of less value than it was 20 years ago.

Who Wants To Be A Millionaire came out in 1999. Yet it’s still airing today. They would need to pay the winner $1.5 million today to have the same value as the $1 million they paid out in 1999. It’ll mean even less to be a millionaire 20 years from now.

Ok, enough about the magic of inflation. Let’s explore scenario 2.

Outlive the 30 years I’ve Planned For + Withdraw More For A More Baller Retirement

The next scenario would be withdrawing more money initially and continuing to adjust for inflation. Let’s see what happens if I withdraw 5% instead of 4%. My money would still last quite a while, and it would continue to grow until a certain point, but then I can see that my withdrawal exceeds the growth of my portfolio and my balance starts dropping (around 2089).

Even so, my money will last me until I’m 119 years old. Not too shabby for being a little greedier with my withdrawals. Not bad if I believe technology is going to prolong our lives at least a little. You can see the result with ~5 year increments below:

  • Retire in 38 years
  • Spend 100 years in retirement
  • Amount Saved at Time of Retirement = $ 3,450,000.00
  • Annual Interest Rate = 8.3% (compounded Annually)
  • Annual Inflation Rate = 3.3%
  • Amount Withdrawn (at the beginning of) each Year = 5% of the initial balance and adjusted annually for inflation
Year Age Beginning Balance Withdrawal Amount Today’s Equiv. $ (2017) Earnings Remaining
2055 65 $ 3,450,000.00 $ 172,500.00 $ 50,231.58 $ 272,032.50 $ 3,549,532.50
2060 70 $ 3,968,283.34 $ 202,904.05 $ 50,231.58 $ 312,526.48 $ 4,077,905.78
2065 75 $ 4,533,929.64 $ 238,666.97 $ 50,231.58 $ 356,506.80 $ 4,651,769.47
2070 80 $ 5,133,739.72 $ 280,733.29 $ 50,231.58 $ 402,799.53 $ 5,255,805.96
2075 85 $ 5,741,633.20 $ 330,214.04 $ 50,231.58 $ 449,147.79 $ 5,860,566.96
2080 90 $ 6,311,207.75 $ 388,416.02 $ 50,231.58 $ 491,591.71 $ 6,414,383.44
2085 95 $ 6,764,454.31 $ 456,876.42 $ 50,231.58 $ 523,528.96 $ 6,831,106.85
2089 99 $ 6,960,411.08 $ 520,235.56 $ 50,231.58 $ 534,534.57 $ 6,974,710.09
2090 100 $ 6,974,710.09 $ 537,403.33 $ 50,231.58 $ 534,296.46 $ 6,971,603.22
2095 105 $ 6,740,985.21 $ 632,123.54 $ 50,231.58 $ 507,035.52 $ 6,615,897.19
2100 110 $ 5,749,389.00 $ 743,538.68 $ 50,231.58 $ 415,485.58 $ 5,421,335.90
2105 115 $ 3,515,279.49 $ 874,591.35 $ 50,231.58 $ 219,177.12 $ 2,859,865.26
2109 119 $ 346,410.58 $ 346,410.58 $ 17,472.76 $ .0 $ .0
Totals $ 25,297,281.51 $ 21,847,281.51

Calculate My Monthly Savings/Investment Goal

Now that I have my ideal target retirement dollar and my timeframe, I can start inputting it into calculators that will tell me how much money over my time frame I need to contribute monthly to hit my goal.

Let’s say I already have $10k saved. I know I have 38 years to save $3.45 million, so I try putting in a monthly contribution of $700. I estimate the return rate relatively conservatively.

I initially said if I’m accounting for inflation in my final retirement target, I should use the non-inflation adjusted rate of return to estimate my monthly savings goal. BUT just for safety’s sake, I tend to run my savings/compounding projections with the inflation adjusted return rate of the S&P 500. So I’m going to assume every year I can expect my retirement portfolio to grow 7% while constantly contributing $700 every month.

How much will I end up with? The calculator indicates I’ll have about 1.5 million at a 7% rate of return. If I get lucky with a 10% annual return, I could end up with $3.1 million. If I get really unlucky with a 4% return, I’d end up with $766k.

So if I believe I’ll have $1.5 million by investing $700 a month. Let’s see what it might look like to do a little more than doubling that $700 since I’m still pretty far off from my target number.

At $1600 a month, I can expect to end up with $3.44 million at a 7% rate of return. If I’m super lucky and end up with a 10% rate of return, I’d head into retirement with $6.6 million.  If I’m super unlucky with a 4% rate of return, I’d end up with $1.7 million.

It looks like $1600 will get me very close to my retirement number. Now I know the number I’ll be targeting for my monthly retirement investments.

Other Considerations

I have a few other considerations I haven’t exactly taken the time to work into my projection. These are all things that will be worked in eventually.

Making A Ton of Money So This Isn’t Even An Issue

While making a ton of money sounds like a great way to avoid retirement planning altogether, I wouldn’t say it’s always a safe bet. First off, you need to define what is “making a ton of money” to you. Second, you need to define what your lifestyle and spending will look like if you made this insurmountably large sum of money.

Because no matter how much you make, it’s the amount you spend out of that “ton of money” that will determine whether you have enough money saved to support that same lifestyle when you’re not bringing home a paycheck.


Different accounts have different taxes. 401ks are tax sheltered meaning when I withdraw from them, I’ll be paying income tax. If I plan on selling off investments from a regular brokerage, I will be paying income tax every year on the dividends as well as capital gains taxes when I sell my investments.

So if I want to live off $40k a year, I’ll really have to account for some sort of tax and end with $40k. Let’s assume my withdrawal will be taxed at a 25% tax rate. So I’d actually need a $52k withdrawal to end up with $40k post tax. This is with the assumption I’ll be working no other jobs when I’m making my withdrawals since that could bump me up to a higher tax bracket.


Another bump in the road for millennials — Medicare is only solvent until 2030. How will that affect government sponsorship of our healthcare when we aren’t working?

I foresee healthcare spending being a much larger part of my working budget than it is today. The current marketplace prices aren’t even that affordable, and it may be even less affordable by the time I’m retiring.

Asset Allocation

The typical recommended asset allocation for retirees is close to 50% fixed income/50% equity. I need to figure out if this number is really for me, since I currently see myself with a little riskier allocation even in retirement.

True Safe Withdrawal Rate

As retirement draws closer and closer, depending on market conditions, I may need to run new projections with a different withdrawal rate. 4% is the agreed upon norm, but today’s market conditions predict a 3.5% withdrawal rate may be more safe. This is something I won’t know until I’m a little closer to my target retirement date. The open question of asset allocation could also affect my withdrawal rate since returns are generally higher for riskier portfolios.

Early Retirement

This IS a personal finance blog, so it’s a little bit difficult not to bring up the prospect of early retirement. I’m not going to lie, I’d definitely love to retire early. HOW much earlier is the question, but retiring early brings in many additional considerations like:

  1. Healthcare – How will I be able to afford healthcare before and in retirement? I need to look up average plan prices + costs during each stage of life. It would also help if I took an even closer look at things I could be doing on a day to day basis that is contributing to my physical fitness.
  2. Withdrawals split between accounts – Retirement specific accounts like 401ks and IRAs allow withdrawals after age 59.5 so I would have to have enough money in a non retirement account to live off until I can use the money in my 401k. I could also choose to have enough money in my 401k to pay the penalty of early withdrawals.
  3. Contribution timeframe for non retirement accounts – I need to have enough money invested in a non retirement account to last me until I can access my 401k.
  4. Contribution timeframe for retirement accounts – Retiring early would limit the timeframe I have to contribute and grow my retirement accounts.With a non retirement account, I can just increase my contributions to adjust for the fact that I have a shorter timeframe to save. Since 401ks have annual contribution limits, there will always be a fixed sum I can put in. Even though the account balance will still be compounding, I’ll have no ability to actively add to it.
  5. Interaction between withdrawals from non retirement and retirement accounts – Above, I mentioned having enough money in a non retirement account to last until I can access my 401k. My original plan was to drain the non retirement account first, and then after running out of money, withdraw from my 401k. With this method, I would need to figure out the length of time the non retirement money needs to last me to get my 401k to a balance I can live exclusively off of. The other option is to figure out a length of time to exclusively withdraw from the non retirement account, and then deciding when I’ll be able to take some smaller withdrawals from my 401k when I have access to it.
  6. Taxes per account – I’ll need to factor in taxes for each type of account that I plan to withdraw from in retirement. For brokerages, I can plan on capital gains tax, while for my 401k, I need to plan to pay income tax (and figure out how money withdrawn from both sources affect each other).
  7. Asset Allocation – If I’m retiring early, I definitely don’t want to miss out on gains that could put my later retirement in a better position. I’m wondering if I’d like to continue maintaining a relatively aggressive allocation since I wouldn’t mind going back to work if the markets are doing poorly.

If you haven’t started planning for retirement, did you find any of these points new and helpful? If you have, what are factors you still need to work out and think about?

Jing is currently a software engineer based in Oakland, CA. She left her job in New York, moved to San Francisco unemployed, and more than doubled her salary in 4 months.

5 thoughts on “The Millennial’s Guide To Drafting Retirement (The Earlier You Start, The Lazier You Get To Be!)

  1. You are right about life not being over at what sounds ancient to your generation. My wife and I are both 62, I retired a couple of years ago and she has stayed at home since our second child was born 26 years ago. We both play tough tennis, as in we can generally beat the best high school tennis team players in our state. We run 18 miles a week including 8 miles every Saturday morning at 5:20AM and we just finished up three days of extreme hiking in rugged, no trail, bush whacking wilderness. We are only slightly slower than we were in our thirties. If you stay in shape you can keep pursuing your current athletic and intellectual hobbies way past 60. Especially if you have plenty of invested assets fed cheating income. Great thorough post!

    1. Wow that’s impressive! I’m hoping I can get fitter as I age like you and your wife 🙂 I only did athletics in high school to get into college, but now that I’m in the working world I find I have quite a few athletic goals I’d like to achieve!

  2. Jared think we are putting too much away in retirement. We do about $60K a year. Most people don’t even make $60K a year post-tax. In a way he’s right but we’re still doing it because I want to be…REALLY LAZY. I mean, I want to be…REALLY REALLY LAZY. I want to be rich enough to buy all new organs and keep me alive like Mr. Burns.

    😐 Is that so wrong?

    1. Is there such a thing as too much?! That just means earlier retirement or an amazing regular retirement! Plenty of time to live your ideal retirement (when’s your book coming out! :P) I have no idea how to juggle investing for a downpayment on a house here vs. just purely saving for retirement. I want to be realllyy lazy too!

  3. I was at retirement planning seminar at my work and really surprised to hear how most of my co-workers who are in their late 40s or 50s are either not started or barely contributed to their retirement accounts. It goes to show that many people don’t plan for their retirement until they get closer to that retirement age of 65.
    Your illustration is great example that starting to contribute to your retirement at an early age can generate more than starting at a later age like in your 40s.

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