Anyone can retire if they want it bad enough. You just need a plan.

by Nick on December 29, 2011

Are you ready to retire?  Well if you aren’t you’re not alone.  In fact, a recent article over at DailyFinance reported that one in six Americans believe they will never be able to retire.  What?!?!  Never?  

Its sad, for sure.  How can so many people be so negative about their future?  Truly, it’s not very surprising, especially given what’s been going on in the world over the four or five years.  It seems everyone I meet is scared, paranoid about their financial future.  Even I, who have mapped out my projected finances out decades in the future, have moments where I wonder if it will all work (although “it will all work” generally means becoming financially “free” by 40 and “freer?,” i.e. with an impressive passive income, by 45 at the latest…).

So I understand.  But it doesn’t have to be that way.  I am completely confident that anyone can retire in 20 years if they play their cards right.  Yes, 20 years.  So I guess if you’re 70 with a ton of debt and no savings you might be in pretty tough shape.  But if you’re 50 years old or younger, and healthy, I have no doubt you can become financially free within 20 years.  How?  Simple.  (Yes, simple.)

Take your annual earnings and put it on the top of a page.  Then subtract 20% and have that amount automatically put into an IRA or 401(k).  If 20% is more than the max permitted with those accounts, great.  You’re making good “coin.”  Put the rest in good low-cost index mutual funds through auto-invest.  (BTW, I make sure to do this with the before taxes amount.  I believe you can do it.  It could be tough, but I believe you can do it.)

You’re now saving 20% of your salary.  Do your budget with the rest.  Do whatever necessary (and legal and ethical) to stretch the rest.  Challenge yourself.  You’ll have to give up some luxuries at first.  Hey, if you want to retire badly enough you can live on a very simple food budget and eat a bare minimum healthy diet (I’m no expert but I’m thinking tuna, beans, pasta, etc.  Small meals.  Vitamins.  Water.).  Stop smoking.  Start jogging.  Get the drift? 

After five years, with a seven percent return you have about 1.25 of your salary.  (By the way, assuming a 7% return is not unreasonable, even in this environment.  I did a quick search on Morningstar and got dozens of U.S. Funds with at least a 7% return over the last 10 years.  So we’ll go with that.)  Twenty years?  You could have saved almost 9 times your salary.  So that means, continuing that 7% return in “retirement” could replace about 60% of your salary.  Oh, and your tax rate will hopefully go down with long-term capital gains rates, but let’s not dwell on that here.

And guess what?  If this example is you I would bet you dollars to donuts that you’ll be saving more than 20% of your salary within five years, your salary will go up and up and up and within 20 years you will have 10-15 times your salary or more.  7% of that would be pretty nice considering your reasonable lifestyle. 

Now, this is a very, very simplistic example that doesn’t reflect inflation, raises, different costs in retirement (health care changes, hopefully you have no mortgage anymore, etc.).  But it illustrates a point.  Consistent positive money moves for a long period of time can put anyone in a position to retire well.  In fact, you can even do it on auto pilot!  That’s like dummy-proofing “Old You.”

I hope none of you are one of the Americans who think they’ll never retire.  Sometimes it’s tough, I know.  But keep your head up and, if necessary, automate it.  When will you retire?  Do you have a plan?

Until next time, put your credit card down and slowly step away from the mall!

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{ 1 comment… read it below or add one }

Alex Swift July 18, 2015 at 11:30 pm

20 years that is very ambitious. I think it would depend on your income if your are taking 20 percent for investing.


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