To spend and save $145k net income per year, you need a gross comp of $240k per year where I live. To save $1.5M at a rate of $100k per year would take 15 years. To do so by age 40 would mean that you need to be at a $240k/year salary by the tender of age of 25, and also have the restraint to live off of a mere $45k per year (presumably in a city with a high cost of living, since you are earning $240k at 25). And after you retire at age 40, you get to spend 2% of your $1.5M per year ($30K) which is below the poverty line where I live (at least as a household income).
Thus, for the math to work you need to verify that you have (or earn via interest/other investing) twenty years of expenses via funds outside of your 401k.
The earlier comment also omitted the backdoor Roth, which can get a married couple another 11k post-tax into a Roth, which can then grow and be used tax free.
That said, "$3916 a month from when you were 18 until 40" is simply not realistic for most people. How about college? You're not going to get a $100k+ a year job without either college or years of experience. Where do you find that perfect mate capable of immediately working their own $100k salary and contributing almost $2k a month to retirement at 18?
Personally, I make a really good salary (it's worth noting that it took until I was nearly 40 to even get to this point), have a working spouse, live in a relatively inexpensive part of the country, and I still could not put $4k into an 401k or roth IRA every month. Owning a house and reliable cars, having dependents... it's not realistic; it leaves nothing for wiggle room.
I'm also going to come out and say it: working yourself to the bone, skimping and saving is no way to live some of the most active years of your life.
That's my 2¢.
Exactly the response to all of these "retire young" articles. They neglect to say that you are doing it at the expense of not taking advantage of a healthy young body to adventure and enjoy life while you can...you may get hit by a bus tomorrow and then what a freaking waste of time all the penny pinching was!
I'm not suggesting that doing this is a walk in the park, you definitely have to prioritize around it (which may include living in a city that isn't insanely expensive), but it's doable.
I tried explaining all this to coworkers when I worked at Google, and many people dismiss the idea. These are the same people who:
- Drive a new Tesla
- Pay $120k/yr to send their four kids to private schools despite good public schools in the area
- Insist on living in SF and commuting 2 hrs by bus each way
- Jetset around the world for vacations
- Eat out at every non-Google meal
You can lead a horse to water... but sometimes you just can't make them drink. And guess which of my coworkers complained the loudest about unlivable wages in SFBA...?
Are you saying you pay $95K in tax?
If you have a 401K you can save a significant amount pretax. You're also not factoring in portfolio growth over the 15 years you're saving.
If your spouse is going to work too, I admit that is a lot more doable.
If not, well... looks like the secret is, "be rich/well-paid, and don't piss it all away". Excellent advice, but I could have told you that already ;)
It's $240k/year in Canada.
If your spouse is going to work too, I admit that is a lot more doable.
Is it? Saving $1.5M by age 40 gives you a $30k/year life annuity (2%) for retirement. During the accumulation phase you need to save $100k/year for 15 years, so you only get to spend $45k per year during your pre-retirement life. Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family?? I think not, that's called poverty. You need to be earning $240k gross per household member starting from age 25, in order to make this retirement "plan" work.
Ah yes, the hacker news bubble where $40k a year is poverty.
Sometimes I am just speechless... This is one of those times.
You'd be in good company.
The median household income in the US is ~$51k. The median personal income is ~$30k. The poverty line in the continental US for a family of 4 is ~$25k.
If you already own a home that is more than enough to live well as a family in most parts of the US.
> Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family??
Of course you have to make sacrifices. It all depends on what you want in life.
I lived with my parents until my early thirties and that allowed me to buy a house outright.
That can lead you to make poor decisions which provide short burst of happiness. No matter how large an income you have you will be able to get a mortgage, a car loan and credit card payments sufficient to entirely consume your paycheck. And if you do still wind up with extra cash why not put in a swimming pool/buy a boat/take an expensive vacation. That will cheer you up (for a while).
Stuff like a more expensive home, vehicles and boats are especially disastrous financially because they have ongoing costs in addition to the upfront expense. You pay a bunch of money now and then have to pay money for maintenance, insurance etc for as long as you own the thing.
(Not you specifically, people in general. Or society encourages this)
The MMM achievement of annual expense spending of $24k is not far off from what I assume most HNers have after rent and savings.
That's easy! I can just move back to Europe. Sweet.
> you can save ~$100k
Oh ... no ... no I can't get that in Europe. Well maybe I could, but my SO is not an engineer and can't get decent remote jobs.
Any suggestions for these remote jobs that pay 100k+?
Also how do taxes work in that case?
For example the tax rate in Germany on that amount ($100,000/91.000€) would mean your net pay would be around 51.000€/year. I'm including healthcare and retirement contributions in this figure.
I live in a major city in Germany and my annual expenses are around 16.000€ for a modest lifestyle. So that's only saving 35.000€/year. Hardly close to 100k.
I'm not aware of many European countries where the tax rate is significantly lower for individuals. Unless you lived somewhere like Bulgaria where the cost of living is much lower.
> This was achieved not through luck or amazing skill, but simply by living a lifestyle about 50% less expensive than most of our peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two.
http://www.mrmoneymustache.com/about/
Just a couple of extra people (maybe two families) working and giving a big slice of their income. Everyone can do this, right? Wait. If we all do it how can we all live off part of the wages of at least two wage earners?