How much should I have saved up?

Question

I’m in my 20’s and was wondering what someone my age should have saved up by 30 in order to be able to retire early by age 40.

I contribute to 401k and Roth IRA but I’m more interested in hearing peoples opinions on how much cash someone should have by age 30.

Charles Carillo · Answer

@Sergio A.

This is a very subjective question and I imagine you will get answers all over the board. I do not think the amount of cash is your real goal (if you want to retire early). Your real goal is an amount of monthly cash flow (that adjusts with inflation) which will cover your monthly expenses. If you have to think that you will live to 100; over 60 years of retirement, there will be a lot inflation (an item purchase for $1 in 1960 would cost nearly $9 today). You also will not be able to access (without penalty) your Roth for the first 20 years.

To answer your question, estimate what your monthly expenses will be at 40 and construct a plan for reaching this monthly cash flow.

Kevin S. · Answer

@Sergio A. There's no real way to answer this with the zero amount of info you provided. Someone could give you a quick answer of $1M or $2M but we don't know anything about your life and what it costs. You need to account for all living expenses (rent/mortgage, food, gas, repairs, etc.) that you currently pay, plus expenses that might come up in the future (do you have kids? What about medical costs as you get older?). Then estimate how long you think you'll live after 40, tack on inflation each year and that might get you a vague estimate of how much you'll need.

The better question is, do you truly want to be retired at 40? And by retired I mean making no income. If you look into the whole FIRE (financial independence, retire early) movement you'll see that a lot of those that do it end up starting some other business after they "retire" whether it's blogging, photography, or some other business that they enjoy but also provides additional income. I've read several blogs where the authors admit that they got bored pretty quickly after retiring and had to find something new to focus on.

TLDR: Depending on how much you spend per year and how long you'll live after 40, you need anywhere from $1M - $5M (maybe/probably/who knows?)

JD Martin · Answer

The better question is: "What kind of job am I pursuing that makes me want to stop doing it by age 40?" . Then do something else instead.

Statistically, you're going to live to about 80. 40 years of doing nothing is a long time. Find a passion that also pays well. If that's real estate, then go for it. If it's something else and real estate is just to supplement, that's fine too.

Daniel McNulty · Answer

@Sergio A.

All the advice above is perfect.

1. Decide what kind of life you want to live, now, at retirement and beyond

2. Model / quantify your life into cash flow needs

3. Start solving your cash flow needs in "retirement", whether through RE or otherwise.

Good Luck!

Danny McNulty

Financial Advisor

Joe P. · Answer

I don't know if there's a right answer to this question. Someone in NYC will need substantially more money than someone from Omaha Nebraska, who will need more money than someone from North Dakota. Lifestyle, family needs, etc., all weigh in, and you won't know where you'll be in 30s or 40s when you are in your 20s. I thought I would be single forever when I was in my early 20s, and now I've been married almost six years...you age/mature as a person and take on major life decisions accordingly.

Your 401k is not going to help you in retiring early due to penalties -- that money can't be touched without penalty until retirement age...which for someone in their 20s, wouldn't surprise me if 70 became the new benchmark. Roth IRA is 59.5. So, in essence, both won't help you retire in your 40s unless you put in major amounts of money, if that major money values high due to market conditions, and if your penalties are not stringent enough to pull from the income you expect to earn accordingly...a.k.a., too many IFs.

I wouldn't be concerned with a number value on how much "cash" you should have. Instead, focus on living within your means and trying to save money to invest. Some folks live in 30/40% of their take home and invest the rest -- risky, sure, but if that pays off they might be able to retire early.

I think a good way to be able to see if you can retire early is to reduce your expenses as much as possible. For me, the order of monthly spend goes something like mortgage (biggest expense), medical expenses, food, car payment, ancillary (smallest expense). Imagine if you could not pay rent or mortgage (via househacking, for example) -- you've just eliminated your biggest expense. How about eliminating a car payment? Presto...one less expense.

I, too, want to retire early. I'm focusing on padding my income via rental properties, because I know there is NO WAY my wife is going to househack. We need healthcare insurance coverage and sadly its a big part of my income. We bought a used car that has reasonable payments for the next few years, but I am paying off more principal because I can (hoping to eliminate the payment sooner). These are ALL things I never expected 10 years ago. But I love my wife, and she is on board with me investing, so my plan and my goals align with our thinking.

In closing, while I don't recommend a cash value, you may want to consider an "income goal" per month that can be obtained via a job, real estate, or investments...and then back into that number to see what it would take to get there. I want 10k a month in rental income by the time I'm 45, so if I have 20 doors with $500 cash flow per month, then conceivably I've done that.

Aaron K. · Answer

Not enough information, as we would need.

What your living expenses are currently.

Do you plan to have a spouse and or children.

Do you want both you and potential spouse to retire or just you.

What do you want your standard of living to be

What investments are you willing to make, because this isn't going to happen with savings alone.

Many other factors play into this, so the best thing you can do now is just save as much as you can.

How much should I have saved up?

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