Speaker 1: Welcome to How the Money. I'm Joel and I am Matt,
Speaker 1: and today we're asking the question who wants to be
Speaker 1: a Millionaire?
Speaker 2: So I just tried to do my best game show
Speaker 2: host voice.
Speaker 3: Did it?
Speaker 2: Show didn't come through?
Speaker 1: You're the next Drew carry?
Speaker 3: Oh? Oh it might? Is that the price is right?
Speaker 3: That's right?
Speaker 2: So I was first thinking about He also hosted whose
Speaker 2: line is it? Anyway? Oh?
Speaker 3: Yeah, did you?
Speaker 2: And before him somebody else? I forgot he used to
Speaker 2: be the old host. Wasn't there's somebody else Parker on prices? Right? No,
Speaker 2: I'm thinking of the improv. Oh okay, did you watch
Speaker 2: a lot of game shows grown up? I know you
Speaker 2: did the Prices right? You talked about how I used
Speaker 2: to watch out with your grandma A right.
Speaker 1: I watched some. I definitely. I mean, Who Wants to
Speaker 1: Be a Millionaire? Was classic? Well, that was a cultural moment,
Speaker 1: and I'm not sure if people a whole lot younger
Speaker 1: than us to remember it because the show came out
Speaker 1: and what like ninety nine, late nineties, early two thousand,
Speaker 1: But for a few years, like millions of people, yeah,
Speaker 1: like tens of millions of people probably were tuned into
Speaker 1: Regis Philbin hosting Who Wants to Be a Millionaire? Every what,
Speaker 1: I don't know, a couple nights a week. They they
Speaker 1: even made it, and it.
Speaker 2: Was at the last Great American Game show where everybody
Speaker 2: was watching before the networks, because after that, I think
Speaker 2: it was all network based and everybody created their own
Speaker 2: game shows and things split off from there. But it
Speaker 2: kind of felt like when folks would sit down and
Speaker 2: I'll watch the same news programs together. This is like
Speaker 2: a class game show where folks did that. But yeah,
Speaker 2: I never I don't never really got into it. I
Speaker 2: love game shows, so I really do. I think they're fine,
Speaker 2: And so Top Chef is that technically a game show?
Speaker 3: Yeah? I can.
Speaker 2: They're competing. It's like that very kind Tom Kalikio, Gail Simmons,
Speaker 2: Hugh Action. Isn't like all those judges, those are those
Speaker 2: are my people?
Speaker 3: Okay? And I used to.
Speaker 2: I probably watched more seasons of Top Chef than any
Speaker 2: other program other than maybe The Office.
Speaker 3: Yeah, scrubs.
Speaker 1: The whole point of this show, by the way, is
Speaker 1: not to wear monochromatic suits and ties. We just feel
Speaker 1: it needs to do. Uh he rests in peace. But
Speaker 1: it really is to talk about like, if you want
Speaker 1: to become a millionaire, like how do you get there?
Speaker 1: But also like is that a good goal to have?
Speaker 1: And there are different, uh inputs that we see all
Speaker 1: the time in financial media about how much we're supposed
Speaker 1: to be saving and investing for the future, and I
Speaker 1: think so can be off putting and downright demoralizing. So
Speaker 1: how much do you actually need or going to kind
Speaker 1: of give a framework for that in regards to how
Speaker 1: much you should be looking to garner in a nest
Speaker 1: egg for retirement. That's that's kind of what this episode.
Speaker 3: Is all about.
Speaker 2: Did you ever listen? Okay, one last question, one last reference.
Speaker 3: I need a phone a friend now.
Speaker 2: I was gonna the Bare Naked Ladies if I had
Speaker 2: a million dollars. Do you remember that song I did back? Yeah,
Speaker 2: they're more known for one week, one.
Speaker 1: Week the nineties music still still rocks men still pretty good. Yeah,
Speaker 1: But Matt, real quick before we get to the kind
Speaker 1: of millionaire discussion that we want to have to the
Speaker 1: actual meat Yeah, episode, just I wanted to quickly mention
Speaker 1: that listener Silas actually created an Excel spreadshe so we
Speaker 1: had another listener actually create a spreadsheet for the beers
Speaker 1: that we've had on the show that will also put
Speaker 1: in the show notes. But Silas he just made a
Speaker 1: new Excel spreadsheet about literally all the How To Money
Speaker 1: episodes and he's categorized them so that you can easily
Speaker 1: find if you're like looking for an episode on transportation
Speaker 1: or cars, or on investing or saving or whatever, you
Speaker 1: can just kind of look through there and filter and
Speaker 1: see which episodes fall under that category. So big thanks
Speaker 1: to Silas for making that, and hopefully it should help
Speaker 1: listeners who are trying to either find a past episode
Speaker 1: they found maybe helpful, or who are new to How
Speaker 1: the Money and they're kind of trying to figure out, like, well, okay,
Speaker 1: but I need help with this. Where do I go
Speaker 1: to get the Because we have like a ridiculous catalog
Speaker 1: at this point of what six hundred and fifty plus episodes,
Speaker 1: it can be hard to sort through, So big thanks
Speaker 1: to Silas for making that a little bit easier for
Speaker 1: a lot of folks out there.
Speaker 2: That's right, And maybe one of these days we'll have
Speaker 2: an ultimate spreadsheet that combines Beer and the Money topics
Speaker 2: by category and buy abv waight and.
Speaker 1: Style of beer and by how long your hair was
Speaker 1: time recording too.
Speaker 2: Let's quickly introduce the beer that you and I are
Speaker 2: going to enjoy during this episode. This was a double clutch.
Speaker 2: This is a nitro oatmeal stout. This one is by
Speaker 2: Gruner Brothers Brewing again sent to us by Katie so Silas,
Speaker 2: thank you and Katie thank you. Yeah, this episode could
Speaker 2: not have happened.
Speaker 1: Without the help of both of y'all. Yes, thank you
Speaker 1: so much. All right, but let's get into it. Matt,
Speaker 1: who wants to be a millionaire? And when we're contemplating
Speaker 1: this topic, it made me think for some reason, of
Speaker 1: Sherlock Holmes, who is a literary character of Highest Team.
Speaker 1: We've all heard of this guy. Part of him, Yeah,
Speaker 1: most death He saws mysteries, and I feel like the
Speaker 1: I still remember in the hospital. I think we were
Speaker 1: having our first child. Emily and I watched the Benedict
Speaker 1: Cumberbat Sherlock Holmes series, which was really really good. That
Speaker 1: was like what, yeah, like while Emily was in labor.
Speaker 1: It was like pre labor, like getting ready.
Speaker 2: I don't think she now she hates Bennett, right, I
Speaker 2: can't watch any of his movies exactly.
Speaker 1: Sorry, Bennedict I'm sure you're a nice guy.
Speaker 3: Well.
Speaker 1: The cool thing though about like Sherlock Holmes is that
Speaker 1: he uses inductive recent to solve his cases. He begins
Speaker 1: with observations which propel him in the search for the truth,
Speaker 1: and so deductive reasoning, on the other hand, begins with
Speaker 1: a hypothesis and then uses facts that you accumulate along
Speaker 1: the way in order to confirm a theory. But when
Speaker 1: we're talking about how much we need in retirement and
Speaker 1: if a million dollars is actually going to be enough,
Speaker 1: you and I would say that the Holmes the end
Speaker 1: approach is most helpful. Taking that Sherlock Holmes approach and
Speaker 1: do some observing and then start asking some questions based
Speaker 1: on what you can observe, and hopefully this endeavor helps
Speaker 1: you gain a better understanding of what your goal should
Speaker 1: be and how they're going to influence your actions. Now
Speaker 1: I think it's starting from that randomly concocted end goal. Actually,
Speaker 1: it does this a disservice really, when we're trying to
Speaker 1: figure out what we should be saving for retirement.
Speaker 3: That's true. Yeah, And by the.
Speaker 2: Way, we're you a fan of the Robert Downing junior
Speaker 2: version of oh yeah, you put out that Sherlock.
Speaker 3: Now, that was a great one.
Speaker 2: So like that one because I feel like it was
Speaker 2: way more action based as a put you know, he's
Speaker 2: like jumping out of buildings into rivers and canals or whatever.
Speaker 1: Guy Ritchie, that was like probably the last great thing
Speaker 1: he did, right.
Speaker 3: I forgot. Yeah, that's why I like that one man.
Speaker 1: He made so many good films early on the string
Speaker 1: of hits.
Speaker 3: Yeah.
Speaker 2: But so basically when it comes to investing, if you
Speaker 2: haven't started investing yet, you might be seeing some headlines
Speaker 2: out there right that say that you need to have
Speaker 2: a ton of money set aside in order to quit
Speaker 2: your job in order to actually retire someday. A recent
Speaker 2: article from Fortune magazine, they basically said that the quote
Speaker 2: unquote experts that they don't believe that a million dollars
Speaker 2: is enough that you actually need to have closer to
Speaker 2: two million. Technically one point nine million dollars set aside,
Speaker 2: which is that's a ton. And like when you are
Speaker 2: faced with that much like that sort of headline number,
Speaker 2: I think it can feel defeating, right, Like, sometimes these
Speaker 2: stories they can do more harm than good. Instead of
Speaker 2: encouraging someone to get their act together, they actually might
Speaker 2: think that they're just a total lost cause, that it's
Speaker 2: hopeless and they're gonna maybe just end up throwing in
Speaker 2: the towel.
Speaker 1: Yeah, Like, if you've barely started and you see that
Speaker 1: headline number, you just say screw it by end up
Speaker 1: winning the lottery, what's the point, Yes, exactly. I think
Speaker 1: it does kind of encourage that lottery ment to a
Speaker 1: certain extent.
Speaker 2: Yeah, but you know, we're going to dispel some myths
Speaker 2: today and we're going to explain how retiring with enough
Speaker 2: money on hand is actually more attainable than you think.
Speaker 2: And we're going to talk about how, you know, hitting
Speaker 2: that one million dollar mark, which, by the way, it
Speaker 2: actually might be more than enough, but even still, how
Speaker 2: it isn't impossible when you have decades of time to
Speaker 2: get there, When you've got time on your side, in particular,
Speaker 2: it is very achievable.
Speaker 1: I like how you mentioned the lottery thing, because it
Speaker 1: is true. I think a lot of people in you
Speaker 1: think of people who buy lottery tickets as making a
Speaker 1: horrendous mistake. And it is true that you're very, very
Speaker 1: very unlikely to win the lottery.
Speaker 2: Right.
Speaker 1: The odds are heavily stacked against you, and a lot
Speaker 1: of people spend way too much money on lottery tickets,
Speaker 1: inhibiting their ability to grow wealth. But some people in
Speaker 1: some of the most impoverished communities, it feels like that's
Speaker 1: their only way out is to win the lottery and
Speaker 1: not buy investing regia because they see headlines like this,
Speaker 1: I think, and it leads them to believe, well, there's
Speaker 1: no way that my you know, fifty bucks a month
Speaker 1: is actually that would which is all I can stomach
Speaker 1: to invest, is actually going to get me here. Sure,
Speaker 1: And it's completely demoralizing, and I think it does actually
Speaker 1: lead to some of those more risky approaches to wealth building,
Speaker 1: cause they just don't think this is for them, which
Speaker 1: I get, like, yeah, it makes sense.
Speaker 2: Yeah, they're quite literally going for broke because to them
Speaker 2: that seems like the most logical path forward as opposed
Speaker 2: to amassing this impossibly gigantic number.
Speaker 3: Yeah.
Speaker 1: And there might be another subset of folks, though, maybe
Speaker 1: on the opposite end of the spectrum, who are further
Speaker 1: along in their financial journey. You know, maybe you're listening
Speaker 1: and you do have close to seven figures in the bank,
Speaker 1: and maybe you're still only in your mid thirties, which
Speaker 1: is amazing. Yeah, you've done the case. You've done a
Speaker 1: lot of hard work.
Speaker 3: Good for you.
Speaker 1: Yeah, and so you're crushing it. But even some of
Speaker 1: those folks, they might be under the impression, Matt, that
Speaker 1: they need a whole lot more invested in order to
Speaker 1: comfortably retire. They might have done a whole lot of
Speaker 1: heavy lifting already, but they might say, I've still got
Speaker 1: decades of hard work ahead of me. They might fall
Speaker 1: victim to that one more year syndrome, which kind of
Speaker 1: seems to never end. You keep kicking, you keep kicking
Speaker 1: the can down the road. And so building wealth and
Speaker 1: then feeling comfortable enough to slow down and enjoy some
Speaker 1: of what you've been able to amass. That requires two
Speaker 1: different skill sets. And so for those folks, we want
Speaker 1: to hopefully ease your mind a little too, you know,
Speaker 1: helping you to see that it's possible to overdo it,
Speaker 1: and that it is possible to overplan, to oversave, to overinvest,
Speaker 1: and to overwork, creating a different kind of financial imbalance.
Speaker 3: That's it. It's hard to overcome, that's true.
Speaker 2: Yeah, And so there's a recent survey as well found
Speaker 2: that more than seven and ten investors. They say that
Speaker 2: they need between three and five million dollars on hand
Speaker 2: in order to be able to retire with ease, And
Speaker 2: you know, that's an even more daunting task than just
Speaker 2: saving up a cool mill. But so much of these
Speaker 2: responses are based on feelings, they're not actually based on facts,
Speaker 2: and personal finances are so individual, they're so complex that
Speaker 2: it is hard to come up with us just a
Speaker 2: simple formula to help everyone out there. Ton't know exactly,
Speaker 2: you know, what they need to save in order to
Speaker 2: retire comfortably, But we want to do our best to
Speaker 2: give you some guide posts so that you better understand
Speaker 2: what it is that you should be shooting for. Is
Speaker 2: it a million? Maybe that's the right amount for some
Speaker 2: folks out there, but others might really want to sock
Speaker 2: away multiple millions of dollars. And I think others can
Speaker 2: easily do retirement well on a six figure nest egg.
Speaker 2: It all depends on a number of factors, and we'll
Speaker 2: be diving into that during this episode.
Speaker 1: Yeah, I wish there was a calculator and that kind
Speaker 1: of knew some of that future for you, Like, hey,
Speaker 1: you're probably going to encounter these health issues and guess
Speaker 1: what you know, you're probably going to live to the
Speaker 1: rif old age of ninety one or so. If you
Speaker 1: knew some of those things and you could plug those
Speaker 1: into a calculator, you can more easily understand exactly how
Speaker 1: much you need to save. But we don't have a horoscope,
Speaker 1: right or is that a horoscope? Is that what that yeah, okay.
Speaker 2: Tells you the future or yeah, what's going to happen
Speaker 2: based on yeah, not that you're born in.
Speaker 1: I haven't had my tarot cards read recently, and so
Speaker 1: I don't know what's going to happen in the future.
Speaker 1: And because of that, we have to make kind of
Speaker 1: some educated guesses, and we have to make sure that
Speaker 1: we're sacrificing enough for our future selves. But we're also
Speaker 1: trying to strike that balance constantly while we're doing it right.
Speaker 1: And let's talk about let's dig into a little bit
Speaker 1: of data here, Matt. We've talked about a couple of
Speaker 1: headline numbers that some people assume they need to have,
Speaker 1: or the experts say they need to have, and so
Speaker 1: that can actually I think inhibit people's ability or desire
Speaker 1: to start saving. And talk about some headlines. We're talking
Speaker 1: about some surveys. But what are the facts, jol All right,
Speaker 1: let's talk about the facts. So it might be helpful
Speaker 1: and reassuring to look at the data about how much
Speaker 1: Americans actually have saved, like what they have in their
Speaker 1: four to one k's right now, and so the average
Speaker 1: overall balance inside of four O one K accounts is
Speaker 1: just a hair over one hundred thousand dollars. But then
Speaker 1: when we're talking about retirement, those people should have more money,
Speaker 1: right than just the average four O one K account balance.
Speaker 1: And so the average person who is sixty five years
Speaker 1: or over has two hundred and eighty thousand dollars in
Speaker 1: their retirement accounts. This is according to Vanguard. The facts
Speaker 1: on the ground really fly in the face of some
Speaker 1: of these numbers that we've cited already, Like to say
Speaker 1: that you need a million dollars to retire, or one
Speaker 1: point nine million dollars like the experts say, or like
Speaker 1: the feeling that those people have say I need three
Speaker 1: to five million in order to retire comfortably. Well, it
Speaker 1: almost feels ridiculous because so many people are able to
Speaker 1: get by in retirement. Maybe they're not taking like that.
Speaker 2: Goes contrary to what millions of people are actually doing
Speaker 2: right now.
Speaker 1: So these people have not even high six figures, right, Like,
Speaker 1: we're talking two hundred and eighty thousand dollars on average.
Speaker 1: That's what a lot of folks are retiring with, and
Speaker 1: they are able to make ends meet. Maybe they're not
Speaker 1: taking like cruises on the Danube three times a year. Maybe,
Speaker 1: you know, maybe they're not taking private jets to the Heiti.
Speaker 3: I don't.
Speaker 1: I mean, these are the kind of sacrifices that people
Speaker 1: make when they don't have millions and millions of dollars
Speaker 1: in their retirement accounts when they retire, but they're still
Speaker 1: able to live. Many of these folks a lovely existence
Speaker 1: on a whole lot less than a nest egg of
Speaker 1: multimillions that a lot of people just assume they have
Speaker 1: to have saved up.
Speaker 2: So, you know, it seems that there's like something of
Speaker 2: a disconnect between the amounts that Americans have invested versus
Speaker 2: the amounts that they think that they that they need.
Speaker 2: And you know, we're not gonna spend much time on
Speaker 2: happiness here, but I wonder how much of a factor
Speaker 2: this dissonance plays in happiness and life satisfaction. You just
Speaker 2: mentioned like the euro river boat cruises.
Speaker 3: It makes nice. I have never been one.
Speaker 2: When you look at the list of the world's happiest countries, dude,
Speaker 2: there are about a dozen European countries that rank higher
Speaker 2: than the US. And I'm not sure if it's a
Speaker 2: coincidence or not, but a much higher percentage of Americans
Speaker 2: believe that they need to have a lot more like
Speaker 2: a ton, more than just a million dollars set aside
Speaker 2: than Europeans think. It's almost as if we've set our
Speaker 2: standards too high. It almost as if we've doomed ourselves
Speaker 2: to failure. So of course you're gonna have a country
Speaker 2: full of folks who are significantly less happy than their
Speaker 2: European counterparts, if they feel like they are constantly missing
Speaker 2: the mark, if they feel like that they are regularly
Speaker 2: coming up short in a certain way. I wonder if
Speaker 2: the different expectations that we've set for ourselves as a country,
Speaker 2: how that might that right there, might be actually leading
Speaker 2: us to have just lower levels of satisfaction and happiness.
Speaker 1: Yeah, I think when you have this visceral feeling that
Speaker 1: you're behind the eight ball all the time, and I
Speaker 1: think that's the way a lot of Americans feel, and
Speaker 1: I think it means for a lot of people that
Speaker 1: their expectations are too high. And I don't know what
Speaker 1: makes people feel like they need four or five million
Speaker 1: dollars in order to be able to retire with ease
Speaker 1: when a whole lot of people are doing it well
Speaker 1: with a whole lot less. Maybe it's the comparison game
Speaker 1: that we are apt to play.
Speaker 2: Yeah, maybe they don't. Yeah, cribs, you know, that's what
Speaker 2: the whole thing off, right?
Speaker 3: Yeah?
Speaker 1: Was that exhibit hosting that back in the day or
Speaker 1: is he doing.
Speaker 3: The pit my ride? I don't know he did. I
Speaker 3: think he did ride.
Speaker 1: Okay, if you want all the fancy stuff in retirement,
Speaker 1: then this is how much you're going to need to
Speaker 1: save up. But the truth is it's not that extreme.
Speaker 1: And I do think you're right that having lower expectations
Speaker 1: is going to lead to less consternation around how much
Speaker 1: we need to actually save for retirement. And I think
Speaker 1: we can be happier saving less, enjoying more of the
Speaker 1: day to day and not feeling as overw about creating
Speaker 1: some massive, multimillion dollar nest egg. But it's also hard
Speaker 1: to figure out exactly how much you need to save
Speaker 1: and so next we're going to talk about a wide
Speaker 1: variety of factors that will influence how you think about
Speaker 1: how much you need to have saved up, including debt
Speaker 1: and inflation, which has changed the dynamic for a lot
Speaker 1: of retirees. We'll get to our thoughts on those fronts
Speaker 1: right after this.
Speaker 3: All right, we are.
Speaker 2: Back from the break, and we're going to get to
Speaker 2: I guess, more of the practical application side of our
Speaker 2: episode here in a little bit. But first we wanted
Speaker 2: to spend a minute talking about just mindset and how
Speaker 2: it is that we should be thinking about wealth and
Speaker 2: having enough. And so a question you might be asking
Speaker 2: yourself is whether or not you even need to hit
Speaker 2: millionaire status, because that's going to depend on a number
Speaker 2: of different factors out there that we're going to get
Speaker 2: into now. Because if you are in your early twenties,
Speaker 2: I think it might be easy to think that you
Speaker 2: won't need that much, or that the fairly inexpensive lifestyle
Speaker 2: that you're able to happily live now that's going to
Speaker 2: suit you well, you know, thirty, forty, even fifty years
Speaker 2: down the road. But the truth is that might not
Speaker 2: be the case. Things might cost more money or I
Speaker 2: guess not things, but just what your life looks like
Speaker 2: might evolve over time.
Speaker 1: Because you're less into the hostile and you might want
Speaker 1: a hotel room instead, and you know what that is,
Speaker 1: what my own room. I think that is one of
Speaker 1: those changes in expectations that is normal and okay, and
Speaker 1: I think it's yeah, I don't have any problem. I
Speaker 1: I think it's kind of cool when people in their
Speaker 1: fifties or sixties still want to do the hostile lifestyle.
Speaker 1: More power to you, But there's a lot of people
Speaker 1: who their expectations do change a little bit over time,
Speaker 1: and I think there's a difference between those expectation changes
Speaker 1: and lifestyle creed.
Speaker 2: I think that's the biggest argument against that. Economists that
Speaker 2: put out the consumption smoothing model where he was talking about, oh, no,
Speaker 2: you're going to consume a lot, like go ahead and
Speaker 2: consume more relative to how much you are able to
Speaker 2: make and invest early on, and then you're just going
Speaker 2: to maintain that over time, because I think it's really
Speaker 2: tough to maintain that as you get older. There are
Speaker 2: certain things that you're not willing to partake in that
Speaker 2: you're not willing to participate in in order to just
Speaker 2: simply save a buck.
Speaker 1: Can I look back to those ways in which I
Speaker 1: was hyper frugal back in the day, and I'm glad
Speaker 1: I didn't inflate, not only because it helped me to
Speaker 1: save more, but because it felt.
Speaker 2: Like it would have gotten too out of hand.
Speaker 3: Right.
Speaker 2: Yeah, I like that I had like a runaway train.
Speaker 1: I like that I had to do it on a
Speaker 1: shoestring budget when I was you know, nineteen twenty twenty one. Yep,
Speaker 1: that I was finding free places to stay. That I was,
Speaker 1: you know, trying to do it as inexpensively as possible.
Speaker 1: I saw it as a game. And now it's kind
Speaker 1: of nice that I can afford to ramp up my
Speaker 1: lifestyle at least a little bit. You know, I'm not
Speaker 1: going out of hand, but yeah, I'm glad I didn't
Speaker 1: do it back then.
Speaker 2: And so I mean that's like lifestyle from like a
Speaker 2: just how you're spending maybe additional money. But even like
Speaker 2: you and I man like we're frugal dads, and even
Speaker 2: still we found that life gets more expensive as you
Speaker 2: have kids. Sure, and you know we're not doing private
Speaker 2: island vacations with our family or anything like that, not yet,
Speaker 2: But we're also not finding the absolute cheapest option on
Speaker 2: everything when it comes to our family and our kids.
Speaker 1: Not CouchSurfing anymore, Matt, even though I did back in
Speaker 1: the day, Well, definitely, it'd be hard to.
Speaker 2: Do that with your kids, and so I'm not sure
Speaker 2: how well that would fly.
Speaker 3: With the folks that you would visit.
Speaker 2: But bottom line, I think just giving yourself a certain
Speaker 2: amount of wiggle rim, just a certain amount of margin
Speaker 2: for air as you plan and save for the future,
Speaker 2: that that's really important. And that's sometimes in the fire movement,
Speaker 2: it's just land and we'll talk about specific numbers in
Speaker 2: a little bit, but it's twenty five extra expensives, and
Speaker 2: it's like your expensive today or your expensive further down
Speaker 2: the road, because they might not be the same, and
Speaker 2: so you have to take that into consideration. I think
Speaker 2: something else that's important to mention here is a higher
Speaker 2: savings rate has multiple benefits. It's not only that you're
Speaker 2: able to stock away more money, specifically hopefully into those
Speaker 2: retirement accounts, letting that money compound for you for years
Speaker 2: and decades, but it also means that you have a
Speaker 2: lower amount of monthly outgoing funds. You basically have less
Speaker 2: to fund for retirement if you're keeping your budget more
Speaker 2: in check. And call me conservative Matt, but there's something
Speaker 2: comforting I would say about save a bit more than
Speaker 2: you think you're going to need, leaving yourself more margin
Speaker 2: and the ability to change your mind on things. And
Speaker 2: so you know this likely means exceeding the savings rate
Speaker 2: that you might think you need in order to garner
Speaker 2: yourself more cushion. Because maybe, yeah, just mentioned fire. Maybe
Speaker 2: you discovered the fire movement five years ago and you
Speaker 2: quickly calculated some back of the napkin math and you determined, hey,
Speaker 2: I only need three hundred thousand dollars set aside to
Speaker 2: quit my day job because my expenses are so infinitesimally small.
Speaker 2: I want to go for that lean fire because I live.
Speaker 1: In my mom's basement and that's.
Speaker 3: All I need. Fire.
Speaker 2: By the way, financial independence, retire early, Yeah, that's what
Speaker 2: that stands for.
Speaker 1: But let's say your mom says I don't want you
Speaker 1: in this basement any longer. I'm kicking you out. Well,
Speaker 1: all of a sudden, your expenses go up, and so yeah,
Speaker 1: has and even if you discovered a five years ago
Speaker 1: your life is already probably a change since that inflection point.
Speaker 1: And my guess is in the last five years, with
Speaker 1: the reality of inflation, but maybe even just the reality
Speaker 1: of the fact that you want different things out of life,
Speaker 1: the amount that you need to save has changed. Maybe
Speaker 1: you've gotten married to maybe you bought a house, maybe
Speaker 1: you had a couple of kids, And if so, I
Speaker 1: can pretty much guarantee that will look like a lot
Speaker 1: to you five or ten years ago just isn't going
Speaker 1: to cut it today. And so you know, we I
Speaker 1: think we want to set up those both ends of
Speaker 1: the spectrum at that Some people tell you need five
Speaker 1: million dollars to retire, or a lot of people think
Speaker 1: that that's not true. But then other people think, I'm
Speaker 1: going to be able to retire with four hundred k
Speaker 1: in the bank at the ripe old age of forty two.
Speaker 1: And that might be a bit naive as well.
Speaker 2: It might be pulled the trigger a little too soon
Speaker 2: for you to do that, But that's totally dude. When
Speaker 2: Kate and I first discovered fire, that's essentially our story.
Speaker 2: We did some math while we were in the car
Speaker 2: and we were like, oh man, based on these projections,
Speaker 2: we're going to be able to retire in five years.
Speaker 3: I loved that it was car math that you did.
Speaker 2: Oh okay, we're just sitting in the car talking, having
Speaker 2: it fall in numbers, a discussion we were all the
Speaker 2: way job. We were on the way to a photography job.
Speaker 2: And I still remember that conversation that we had as
Speaker 2: we talked about Downton Abbey, because because they were that's
Speaker 2: how they were able to They're living off the estate,
Speaker 2: living off the fat of the land. But yeah, as
Speaker 2: you get older, your responsibility like you basically you just
Speaker 2: gain more responsibilities, and oftentimes you are you've got other
Speaker 2: folks in particular that are counting on you to be
Speaker 2: able to not be selfish and to be able to
Speaker 2: work hard and to earn money. Yeah, and you know,
Speaker 2: I think it's also worth thinking ahead a little as well,
Speaker 2: and just thinking through maybe how much debt you might
Speaker 2: still have hanging around once you are ready to quit work,
Speaker 2: because if you still have a mortgage, well, if you've
Speaker 2: got a crazy low rate and maybe you are still
Speaker 2: able to earn more just a plain ole savings account,
Speaker 2: well that's not necessarily going to be a bad thing
Speaker 2: to still have a low rate mortgage. But if you've
Speaker 2: got high interest rate credit card debts, well that's gonna
Speaker 2: certainly change the dynamics.
Speaker 1: And you know, you've still got student loans hanging around.
Speaker 1: That's another thing that a lot of people are finding that. Yeah,
Speaker 1: especially people, and there are more people in retirement now
Speaker 1: with student loans than ever before.
Speaker 2: Yeah. Yeah, and you mentioned inflation as well. Don't forget
Speaker 2: the fact that just the costs of basic goods and
Speaker 2: services are constantly changing. You know, we've seen costs skyrocket
Speaker 2: over the past couple of years. Nobody would have ever
Speaker 2: guessed that we were going to see inflation numbers nearing
Speaker 2: double digits, and so planning for the future it involves projecting,
Speaker 2: even though it's impossible to be one hundred percent accurate
Speaker 2: about what our future is actually going to hold. Again,
Speaker 2: this is when having some additional paddings, some of that
Speaker 2: additional margin that's gonna really come in handy.
Speaker 1: Yeah, I'm all about some extra cushion, extra margin oftentimes
Speaker 1: even just for kind of what it does for you
Speaker 1: from a.
Speaker 3: Mental perspective, like take some of that stress off me.
Speaker 1: Yeah, it's like, what if the market does, you know,
Speaker 1: underperform for a little while, or what if my you know,
Speaker 1: costs do exceed when I thought they were going to exceed.
Speaker 1: Having that extra cushion means you don't have to freak out.
Speaker 2: What if I graduate from craft beer to fancy wine
Speaker 2: and I am taking private jets to Island's jewel right,
Speaker 2: I know, I'm mean, I need a little bit of
Speaker 2: money in the bank. It's going to masterally change how
Speaker 2: much you need to say, that's for sure. And so
Speaker 2: there's part of us Matt that wants to air on
Speaker 2: the side of having more just in case. But I
Speaker 2: will say this too, We also think that a majority
Speaker 2: of Americans probably don't need to have as much socked
Speaker 2: away as they think, especially when we're talking about those
Speaker 2: people who think they need to read a five million
Speaker 2: And I would say a lot of people are more
Speaker 2: in touch with the lifestyles of the rich and the
Speaker 2: famous than we are our own actual desires, right, And
Speaker 2: so we kind of see the I'm just reading a
Speaker 2: story the other day about influencers not just renting time
Speaker 2: on a private jet to take a picture, but literally
Speaker 2: rooms that make it look like you're on a private
Speaker 2: jet in order to take a picture. Oh, I've seen
Speaker 2: that there's like a first class cockpit, yes, somewhere that
Speaker 2: you can go and rent side of that where you
Speaker 2: can take selfies.
Speaker 1: And it only fuels so I think the desire for
Speaker 1: everyday ordinary people to say I need that, even though
Speaker 1: what that is it's fake.
Speaker 2: It feels that unhappiness. Yeah, going back to what we're
Speaker 2: talking about before.
Speaker 1: And then it feels that like I think I need
Speaker 1: more than I actually do and in creases perpetual, just
Speaker 1: devastating cycle for people. Yes, but like what lifestyle do
Speaker 1: you expect to live in retirement? I think that's a
Speaker 1: good question for us to be to be asking ourselves,
Speaker 1: Like and you and I were, neither of us are
Speaker 1: about trying to be filthy rich and that private jet
Speaker 1: lifestyle just has no appeal to either one of us.
Speaker 1: But really, sickly thinking through what expenses you're likely to
Speaker 1: have when you do stop working, I think is important.
Speaker 1: If you're the kind of person who's more inclined to
Speaker 1: go on hikes, to volunteer, to hang out with maybe
Speaker 1: grandkids or something like that, you probably don't need as
Speaker 1: large of a nest egg as someone else who wants
Speaker 1: to travel extravagantly like hit every continent and you know,
Speaker 1: or wants to move to a beachfront of state. Those
Speaker 1: are different calculations that we have to make. So if
Speaker 1: you can need less, if you can be content with
Speaker 1: having fewer things and not making those big, opulent purchases,
Speaker 1: it of course extends directly to how much you're going
Speaker 1: to actually need to have saved up for your future.
Speaker 3: Yeah.
Speaker 2: Actually, so on that note, I think it's important to
Speaker 2: mention that being a millionaire, it often really doesn't look
Speaker 2: that impressive. In fact, I think you'd be hard pressed
Speaker 2: to recognize an actual millionaire most of the time because
Speaker 2: they don't advertise it. With the things that they buy
Speaker 2: or the things that they wear, you know, the things
Speaker 2: that they're consuming. They often just look like your average
Speaker 2: middle class individual, but they are living that stealth wealth
Speaker 2: lifestyle that we actually talked about this back in episode
Speaker 2: six point fifty.
Speaker 3: But there's just a.
Speaker 2: Massive difference between lifestyle creep and intentionally choosing to spend
Speaker 2: more money as you get older. It makes me think
Speaker 2: back to our conversation with Jesse. He's the founder of
Speaker 2: Why Nab You Need a Budget, and he talked about
Speaker 2: as I think his splurge was going to be some
Speaker 2: nice leather boots. And he also talked about working in
Speaker 2: his woodshop, not necessarily because it is making him money,
Speaker 2: not because it's a side hustle, but because it's just
Speaker 2: something that he simply enjoys. It's something that he is
Speaker 2: willing to pour more resources into, even though from a
Speaker 2: financial standpoint doesn't really make a whole lot of sense.
Speaker 1: Well, he also said it wasn't lifestyle creep to move
Speaker 1: out of that crummy apartment that they were in that
Speaker 1: had mold growing in the corners or whatever.
Speaker 3: Oh, that's right.
Speaker 1: That was literally just a choice that they made, and
Speaker 1: as their income grew, they had the ability to choose
Speaker 1: something different, and it wasn't a bad idea to get
Speaker 1: the heck out of there, especially with how many kids
Speaker 1: they had.
Speaker 2: I'm sure they handed out there. But you can still
Speaker 2: retain that frugal nature. You can still continue to save
Speaker 2: and invest your money, even if you spend more in
Speaker 2: a particular area that's going to be more important to you.
Speaker 1: Yeah, And I think as you get older, as your
Speaker 1: nest egg grows, the calculation that you have to make
Speaker 1: when you're making bigger purchases change. It changes, and it
Speaker 1: actually it gets easier to spend in certain ways. I
Speaker 1: think I was talking. I had a conversation with a
Speaker 1: friend recently. He went to a concert, Matt. They had
Speaker 1: twenty dollars peers twenty dollars for a local craft beer.
Speaker 1: And this is in California, where everything's more expensive. But
Speaker 1: it just made me think, like, when I was in
Speaker 1: my twenties, there's no way I would have allowed myself
Speaker 1: to spend that much. I knew that I needed to
Speaker 1: be investing more and more. I am now thirty nine,
Speaker 1: and I enjoy a craft beer, and so if I'm
Speaker 1: out of a show, I might allow myself one one maybe,
Speaker 1: but even at twenty bucks, Like it hurts my heart
Speaker 1: to kind of pour that much into a one time
Speaker 1: beverage while out.
Speaker 3: That's true. Yeah.
Speaker 2: So I think another problem too, is just the way
Speaker 2: that our country views retirement, because oftentimes I think it's
Speaker 2: presented as like either this black or white thing, like
Speaker 2: you are either working as hard as you possibly can
Speaker 2: or you're retired and you're doing nothing. But we just
Speaker 2: think that that's a false dichotomy and that there are
Speaker 2: other good options out there. So, like, consider how happy
Speaker 2: you might be just by dialing back at work a
Speaker 2: little bit but still earning a paycheck where you're still
Speaker 2: like you still haven't earned income. It comes down to
Speaker 2: how it is that folks view what a lot of
Speaker 2: folks call retirement, which is still, as we've talked about,
Speaker 2: a relatively new phenomenon.
Speaker 1: Like, it's not like retirement has been around for forever,
Speaker 1: so we've certainly gotten used to it. Yeah, but over
Speaker 1: the past fifty years, when we've created a really dialed
Speaker 1: in definition of it, that doesn't necessarily have to be
Speaker 1: the case. In all likelihood, it shouldn't be the case.
Speaker 1: It's actually probably a bad definition.
Speaker 2: I think so. Yeah, And so essentially what we're talking
Speaker 2: about here is transitioning from working a whole lot to
Speaker 2: just working a little bit less, as opposed to going
Speaker 2: like quitting work cold turkey. And I think this makes
Speaker 2: sense from a financial standpoint, right, because you're able to
Speaker 2: like gradually come down from that income. But this also
Speaker 2: makes sense from like what your days are going to
Speaker 2: look like perspective as well, because I think it's just
Speaker 2: so hard to imagine going from working fifty plus hours
Speaker 2: a week like a lot of Americans are, to sitting
Speaker 2: around doing like who knows what And that's because we're
Speaker 2: a society of specialists. I mean not just in the US,
Speaker 2: but I think a lot of countries are taking this path.
Speaker 2: A lot of us are really good at our jobs,
Speaker 2: and because of that, it's the main focus. And unfortunately,
Speaker 2: we just haven't put much effort into developing our other
Speaker 2: interests that make life rewarding and then make retirement rewarding too. Yeah,
Speaker 2: and I think we need to intentionally cultivate and to
Speaker 2: essentially design, like in our minds that like this can
Speaker 2: either be a mental exercise or like just I guess,
Speaker 2: literally writing it out or living it out on the weekend,
Speaker 2: like what could this look like? Because it's I think
Speaker 2: that maybe that's the difference. Maybe that's the problem is
Speaker 2: that folks they go Monday through Friday and they're working hard, hard, hard,
Speaker 2: and it's crazy, and then on Saturdays and Sundays they
Speaker 2: go crazy watching sports and they're thinking, well, I don't
Speaker 2: want to do that like seven days of the week,
Speaker 2: and so instead, like, because it is sort of a
Speaker 2: black and white thing, maybe it would be helpful to
Speaker 2: actually map out, to design what your life would actually
Speaker 2: look like. And I think that as a society that's
Speaker 2: something we could do more of as well, is to
Speaker 2: find ways to cultivate and foster some of those other
Speaker 2: interests outside of our work.
Speaker 1: Yeah, having other things than work that make you tick
Speaker 1: is important the whole way through life. But when you
Speaker 1: get to retirement, if you don't have those things, boy,
Speaker 1: it makes retirement a whole lot more difficult.
Speaker 3: I think.
Speaker 1: Yeah, I think that's why a lot of people do
Speaker 1: go back to work because they're like, retirement was boring.
Speaker 1: I don't think it has to be, Like I really
Speaker 1: think if we're a little more intentional about cultivating some
Speaker 1: of those hobbies, some of those interests along the way,
Speaker 1: we don't have to be scared by retirement. I think
Speaker 1: it can be a good thing. We can lean into
Speaker 1: it really, really nicely. But yeah, that all to nothing,
Speaker 1: that cold turkey, like you said, I think is understandably
Speaker 1: scary for a lot of people who aren't quite prepared.
Speaker 1: And let's talk about autonomy as well, Matt, because I
Speaker 1: think it's important to mention that retirement can be it's
Speaker 1: not this all or nothing thing, and it can be
Speaker 1: kind of more of a choose your own adventure and
Speaker 1: choose how you approach it. And our listeners, and everyone
Speaker 1: out there is more in control of their future than
Speaker 1: they might feel like they are in the moment. And
Speaker 1: so when it comes to diale in how much you
Speaker 1: need to save and invest for retirement, well, you have
Speaker 1: the ability to change a lot of factors in what
Speaker 1: retirement is going to cost you. So, for instance, just
Speaker 1: because you live in a high cost of living state
Speaker 1: at the moment, it doesn't mean that you'll need to
Speaker 1: stay there when you reach retirement age. If you live
Speaker 1: in California right now, that doesn't mean you have to
Speaker 1: stay there when you reach retirement age. Some states don't
Speaker 1: tax your retirement income at all, and that may make
Speaker 1: an influence might influence you about where you decide to live.
Speaker 1: You might opt to stay close and not move anywhere
Speaker 1: because family and community are important to you and those
Speaker 1: you don't want to move away, even though it's not
Speaker 1: necessarily the cheapest place to live. But the more flexible
Speaker 1: you can be, the more likely it is that you
Speaker 1: won't even need a million dollars in that four to
Speaker 1: one k when you retire. And so if you're willing
Speaker 1: to make significant changes like moving to another state or
Speaker 1: maybe moving to another country altogether, you're going to find
Speaker 1: that your nest egg is going to be able to
Speaker 1: stretch much further than your current expenses might lead you
Speaker 1: to believe. It's a vastly different things to retire in
Speaker 1: Hawaii than it is in Mississippi. Mat when you look
Speaker 1: at the like, I think some recent status just came
Speaker 1: out about that.
Speaker 2: And it might even feel like a different country moving
Speaker 2: from Hawaii to Alabama.
Speaker 1: They're very different places, very different places. But on top
Speaker 1: of that, you might move to choose to move to Thailand, Panama, Columbia,
Speaker 1: some of these really inexpensive places for expats where your
Speaker 1: dollar goes even further. Maybe you're wanting to live that
Speaker 1: Caribbean lifestyle, but do it at a fraction of the cost,
Speaker 1: and that means you won't have to save or invest
Speaker 1: nearly as much either. There are other decisions you can
Speaker 1: make in that kind of choose your own adventure, dial
Speaker 1: in how much you need for retirement scenario.
Speaker 3: But I think.
Speaker 1: About like the cost of living and where you choose
Speaker 1: to live in retirement makes a massive difference. If you're
Speaker 1: able to even like sell a home that's worth eight
Speaker 1: hundred thousand dollars and then you rent a little beat
Speaker 1: shack in Panama for twelve hundred a month. Just think
Speaker 1: about how long you can last even without having saved
Speaker 1: and invested much at all.
Speaker 2: That's true, and you're just touching on location, right. I
Speaker 2: think there are so many other things we also have
Speaker 2: control over, just like the going back to designing your
Speaker 2: life and the different hobbies that you might want to pursue.
Speaker 2: Heads up, if you're going to get into goalf, it's
Speaker 2: probably gonna cost you a lot of money, and so
Speaker 2: you have control over whether or not that that's something
Speaker 2: you pursue. I was joking about getting into fancy wines
Speaker 2: a second ago, but this is a part of the
Speaker 2: reason why I actually have intentionally avoided. I feel like
Speaker 2: I put blinders on when it comes to nicer wines
Speaker 2: because when I do have a nicer wine, I really
Speaker 2: like it, and I don't want to learn more about it,
Speaker 2: because if I get really into it, it's going to
Speaker 2: be something that I'm afraid I'm going to find myself
Speaker 2: pursuing even more.
Speaker 1: And you can choose to pretend they don't exist. Literally,
Speaker 1: I absolutely do.
Speaker 2: I'm still willing to buy a decent bottle that's on
Speaker 2: sale there at Costco, but there are a lot of
Speaker 2: different things that we have control over, and I think
Speaker 2: it's important to remind ourselves of that as we are
Speaker 2: thinking ahead to our future. But we've discussed basically how
Speaker 2: it is we should be thinking about retirement and how
Speaker 2: much money we should be setting aside for the future.
Speaker 2: But we're gonna dive into some of the practical steps.
Speaker 2: We're going to get into some of the nuts and bolts.
Speaker 2: That way you can legitimately determine how much it is
Speaker 2: that you're going to need to set aside for a retirement.
Speaker 1: We'll get to that right after this. All right, now,
Speaker 1: let's keep going. Let's talk about becoming a millionaire, whether
Speaker 1: or not that's a good goal. It is for some,
Speaker 1: it's not for others. Some people do need to save
Speaker 1: up three to five million if you're going to live
Speaker 1: that lavish retirement lifestyle that you've been dreaming of, But
Speaker 1: other people need a whole lot less. But we've talked
Speaker 1: about the need for flexibility. It makes me think of
Speaker 1: my mother in law who said, you know what we
Speaker 1: want to do. We want to retire and get in
Speaker 1: an RB. They bought the RB, they lived in it
Speaker 1: for six months, and they said we hate this thing
Speaker 1: and they had to ditch it.
Speaker 3: And so you don't know.
Speaker 1: Really what your retirement lifestyle is going to look like
Speaker 1: until you get there. So you have to plan kind
Speaker 1: I think you know, yeah, yeah, may not. And you've
Speaker 1: got a plan for kind of a multitude of potential circumstances.
Speaker 1: But let's now talk about kind of some of the
Speaker 1: practical steps. Even though there's a lot of unknown when
Speaker 1: it comes to planning for our retirement future, some of
Speaker 1: the practical steps to get to the end goal that
Speaker 1: makes the most sense for you. And so we would say, first,
Speaker 1: calculate how much you might need, and I stress might
Speaker 1: because there are still so many unknowns, like we've talked
Speaker 1: about already, instead of throwing in the towel because three
Speaker 1: point nine million feels like an impossible goal, or just
Speaker 1: saving as much as humanly possible, even though you wish
Speaker 1: you could be spending a bit more. In the here
Speaker 1: and now, use some math to your advantage. So use
Speaker 1: data to help you understand what your actual needs are
Speaker 1: likely to be. And I mentioned this briefly earlier, and
Speaker 1: I talked about how it's an imperfect calculation, but twenty
Speaker 1: five x your likely annual expenses gets you a decent
Speaker 1: understanding of what you should likely be shooting for. And again,
Speaker 1: because of inflation, because of time, a variety of factors,
Speaker 1: the fact that it's hard to predict what our outgoing
Speaker 1: expenses are going to be every single month with accuracy,
Speaker 1: especially when we're talking about thirty years down the road.
Speaker 1: It is imperfect, but it is helpful. So, for example,
Speaker 1: let's say you're spending thirty five thousand dollars a year
Speaker 1: as a family annually right now, because you're hyper frugal, Well,
Speaker 1: you might want to say, what if it was sixty
Speaker 1: thousand dollars by the time we get to retirement. Sixty
Speaker 1: thousand dollars times twenty five gives you one point five
Speaker 1: million dollars. Maybe that's the number you need to be
Speaker 1: shooting for. I think it's at least a good rule
Speaker 1: of thumb. Then it's a good starting point, that's right.
Speaker 2: Yeah, And so the twenty five times rule, it's based
Speaker 2: on the safe withdrawal rate of four percent. And we're
Speaker 2: not going to dive into like the research and all
Speaker 2: the studies that this is based, but just know that
Speaker 2: the twenty five x rule that is based on the
Speaker 2: safe withdrawal rate of four percent. And a practice that
Speaker 2: we would recommend is for you to track your net worth.
Speaker 2: If this is not something that you're already doing. We
Speaker 2: talked about this back in episode to fifty seven. And also,
Speaker 2: your net worth is not going to go up like
Speaker 2: clockwork every single year, but the general trend should be
Speaker 2: up into the right. By the way, don't start to
Speaker 2: think that your personal worth is tied up in your
Speaker 2: actual net worth and how much money you have. That's
Speaker 2: that's a bit ridiculous. But do add up your assets,
Speaker 2: add up your liabilities, and do the math to figure
Speaker 2: out your net worth on an annual or a semi
Speaker 2: annual basis. You can do this either manually or you
Speaker 2: can check out in power that was it used to
Speaker 2: be called personal capital, but that's another great way to
Speaker 2: automatically track that. But it is just a great way
Speaker 2: to follow your progress and to see how you're doing
Speaker 2: over time, because it's amazing. How maybe it's not amazing, actually,
Speaker 2: maybe it's discouraging. How it can feel like you're moving
Speaker 2: just at a snail's pace, How you're just moving inches
Speaker 2: in those first few years, but then it feels like
Speaker 2: you're moving feet at a time, maybe.
Speaker 1: After a decade much bigger strides.
Speaker 2: I can't imagine what it'll look like, you know, for us,
Speaker 2: like when we get to be warm Buffetts age and
Speaker 2: by the way, the vast majority of his wealth it's
Speaker 2: come after retirement age thanks to the power of compounding returns.
Speaker 2: And so hopefully when you calculate how much you need
Speaker 2: to have set aside in your portfolio to retire, right
Speaker 2: you multiply your annual expenses by twenty five in order
Speaker 2: to figure out that dollar amount.
Speaker 3: Hopefully you are encouraged.
Speaker 2: But even still, I think there might be some individuals
Speaker 2: who might be slightly discouraged because it still feels like
Speaker 2: this massive sum of money. But I just touched on
Speaker 2: compounding returns, and what I want to highlight here is
Speaker 2: that because you might be saying yourself, there's no way
Speaker 2: I'm going to be able to close that gap. This
Speaker 2: is how much I have currently I did the net
Speaker 2: worth thing, this is how much I need. How it's
Speaker 2: like I'm not going to be able to bridge that gap.
Speaker 2: And what I'm here to say is that it's not
Speaker 2: completely up to you in order to set us. It's
Speaker 2: not savings right like we're talking about investing here. So
Speaker 2: it's not how much and how hard it is that
Speaker 2: you can work in order to bridge that gap. It
Speaker 2: also comes down to how hard your money is going
Speaker 2: to work. When it comes to bridging that gap and
Speaker 2: making up the difference. The amount of money you're going
Speaker 2: to have in retirement is going to be far in
Speaker 2: excess of what you contributed because of compounding returns, right,
Speaker 2: and so let's talk about that. One of the most
Speaker 2: practical ways to get to the point where you have
Speaker 2: enough in retirement is to stick money into those tax
Speaker 2: advantage retirement accounts. And most millionaires, Matt, they actually achieve
Speaker 2: that millionaire status purely directly by investing in retirement accounts
Speaker 2: through work. It's crazy, but it's true. A lot of
Speaker 2: people assume that it's through an inheritance or through having
Speaker 2: some big time job, but no, that's not the case.
Speaker 2: There are so many retirement account millionaires that make up
Speaker 2: a big bulk of the millionaire class. They got there
Speaker 2: over the decades. And so if you're contributing something like
Speaker 2: two three four percent of your income into a retirement account,
Speaker 2: it's probably not going to be enough to propel you
Speaker 2: towards millionaire status unless your salary is ridiculously high, in
Speaker 2: which case true, you probably are going to need more
Speaker 2: money because you're spending most of that. But if you
Speaker 2: can sock away fifteen plus percent of your pay, plus
Speaker 2: snagging a company match at the same time, that will
Speaker 2: make it quite likely that over the years, in the decades,
Speaker 2: you're going to easily achieve that mantle. You're going to
Speaker 2: be able to have that status of retirement account millionaire.
Speaker 2: And so in twenty twenty three, workers can contribute a
Speaker 2: maximum of twenty two five hundred dollars per year to
Speaker 2: tax deferred plans like a four H one K or
Speaker 2: four H three B, which would two if you did
Speaker 2: this over thirty years of your working career, six hundred
Speaker 2: and seventy five thousand dollars of total contributions. But if
Speaker 2: you do quick math, assuming a seven percent annual return,
Speaker 2: which is pretty online, historically, the contributions would grow to
Speaker 2: be worth over two million dollars over those decades. So
Speaker 2: we're talking about saving up basically less than a third
Speaker 2: of what you would have over time, which is pretty cool.
Speaker 2: So granted, twenty two to five is a lot to
Speaker 2: be able to set aside to invest in a single year,
Speaker 2: and especially trying to do that every single year over
Speaker 2: thirty years not necessarily easy, but it just goes to
Speaker 2: show you even if you did, if you did half
Speaker 2: of that, you would be over a million dollars in
Speaker 2: those decades. So just important to note that this is
Speaker 2: one of the easiest best ways to get there slowly
Speaker 2: but surely by making those contributions with every paycheck when
Speaker 2: it comes to like a way to illustrate compounding growth
Speaker 2: is imagine a pond and it's got a lily pad
Speaker 2: there on the pond, and at the end of the month, right,
Speaker 2: so say you're starting out on day one, say by
Speaker 2: day thirty one, the pond is going to be completely
Speaker 2: covered in lily pads. This is a lily pad that
Speaker 2: likes to multiply by one hundred percent. It doubles every
Speaker 2: single day. And if you were to ask somebody, okay, hey,
Speaker 2: when is that pond going to be halfway covered in
Speaker 2: lily pads.
Speaker 1: A lot of people would say day sixteen or seventeen.
Speaker 2: The way our minds work, we think linearly and we think,
Speaker 2: oh yeah, about halfway through the month, when in fact,
Speaker 2: if you think about it for maybe a second longer
Speaker 2: you realize, oh no, it's literally day thirty, it's the
Speaker 2: day before the last day of the month that the
Speaker 2: lily pads only cover half of the pond. And so
Speaker 2: that is the power of compounding. Granted, you're not like
Speaker 2: you're not going to see one hundred percent returns within
Speaker 2: your portfolio. But the idea here is just to illustrate
Speaker 2: the power of compounding. Angel you were just talking about
Speaker 2: how you would sock away six hundred and seventy five
Speaker 2: thousand dollars in total contributions if you have a workplace
Speaker 2: retirement account, and how that's much less than the two
Speaker 2: million total that you would have at the end of
Speaker 2: your working career. But if you don't have access to
Speaker 2: a natural workplace retirement account, you can still become a
Speaker 2: millionaire only simply maxing out a roth IRA. And so
Speaker 2: instead of socking away just over twenty two thousand dollars
Speaker 2: a year, you've only got to invest sixty five hundred
Speaker 2: and you do that for roughly thirty seven years, and
Speaker 2: it's very very likely that you're gonna have seven figures
Speaker 2: on hand, And so keep that in mind as well.
Speaker 2: You don't have to have a four to one K
Speaker 2: with a sweet match in order to hit that millionaire status.
Speaker 2: And another recommendation for folks, turn on automatic increases for
Speaker 2: your contributions the amount that you are putting towards retirement
Speaker 2: if you do have a workplace retirement account. And this
Speaker 2: is just a simple way that you are going to
Speaker 2: be able to set it and forget it. You just
Speaker 2: make that quote unquote hard decision just once, and your
Speaker 2: contributions are gonna increase maybe one or two percent each year. Man,
Speaker 2: Like when Warren Buffett he was asked about why more
Speaker 2: people don't copy his approach when it comes to investing,
Speaker 2: he said that it's because nobody wants to get rich slowly,
Speaker 2: and man, he is totally right. Because the sexy, the
Speaker 2: unproven route it holds appeal to so many folks, but
Speaker 2: nobody wants to map out a game plan for the
Speaker 2: next thirty years. But it is going to be the
Speaker 2: most surefire away to actually become a millionaire.
Speaker 1: Yeah, a lot of people say they envy Warren Buffet
Speaker 1: or they look at him with admiration, but most people
Speaker 1: don't want to follow that path. So that's the allure
Speaker 1: of crypto, right, that's the llure of NFTs or single stocks.
Speaker 1: It is to be able to go to the moon
Speaker 1: really quickly, but most people end up getting burned and
Speaker 1: it only prolongs their ability to reach financial independence to
Speaker 1: meaningfully build wealth through their future, and getting rich slowly
Speaker 1: is the surefire way to do it, but you're right,
Speaker 1: it takes more time than most people want to give.
Speaker 1: And this is an instance, Matt, when it really pays
Speaker 1: to keep things incredibly boring by investing in low cost
Speaker 1: index funds, which, yeah, investing doesn't need to be sexy
Speaker 1: and shouldn't be sexy if you want to become a millionaire,
Speaker 1: If you want that super fun, investing the lights, the
Speaker 1: bells and the whistles, you're less likely to get there.
Speaker 1: And instead, we want you to focus on ways that
Speaker 1: you can afford to increase those contributions over time. How
Speaker 1: can you dial those up little by little over time.
Speaker 1: You talked about automatically increasing contributions every year. I think
Speaker 1: that's one good way to do it. Also, I want
Speaker 1: to make an argument for being frugal and being able
Speaker 1: to invest more of your income over the years and decades,
Speaker 1: because it really adds up. And I think one thing
Speaker 1: that can help us to do that. We just talked
Speaker 1: about it in a recent how to Money newsletter, was
Speaker 1: using the rule of one seventy three to your advantage
Speaker 1: so you can see how much current recurring expenses are
Speaker 1: actually costing you. The truth is, we all have small
Speaker 1: leaks in our financial lives, and a lot of them
Speaker 1: are happening on a recurring basis, like subscriptions that we
Speaker 1: sometimes even forget about. But plugging a bunch of small leaks,
Speaker 1: it doesn't feel like it's going to have a massive
Speaker 1: impact over just the course of a single month. But
Speaker 1: the rule of one seventy three helps us understand just
Speaker 1: how much those recurring trips are costing us over the
Speaker 1: course of a decade. So because that helps us see
Speaker 1: not just how much it is leaving our account, but
Speaker 1: that amount plus the market return and we're missing out on.
Speaker 1: So how do you use this rule? Will just multiply
Speaker 1: that monthly expense by one hundred and seventy three and
Speaker 1: you'll see the amount of money you would have had
Speaker 1: over the course of a decade had you rained in
Speaker 1: that expense and invested it instead. So let's say you
Speaker 1: are spending too much eating out, which is a problem
Speaker 1: for most Americans, Let's say you spend one hundred dollars
Speaker 1: less on eating out. You're able to cut that budget back.
Speaker 1: That's seventeen three hundred dollars more in your retirement account
Speaker 1: after just ten years, which just helps put a small
Speaker 1: leak in perspective as to how much you could actually
Speaker 1: grow that money over time if you were to do
Speaker 1: something better with it instead of using it on uber
Speaker 1: eats and all that stuff.
Speaker 3: That's true.
Speaker 2: And by the way, you said cut back on a
Speaker 2: hundred dollars, you didn't say just to eliminate it completely.
Speaker 2: You can still go out to a restaurant here and there,
Speaker 2: but the ability just to rain in some of your expenses.
Speaker 2: The rule of when seventy three helps put that in perspective.
Speaker 1: Well, like we talked recently on a Friday flight about
Speaker 1: how Americans are spending more eating out than they are
Speaker 1: on groceries, and if you would just flip that equation
Speaker 1: a little.
Speaker 3: Bit, you can easily find one hundred bucks. That's right.
Speaker 2: Yeah, And so these different calculations like these are just
Speaker 2: simple rules of thumb that it shouldn't be the final
Speaker 2: say as to how much you're going to have after
Speaker 2: ten years or how much you need to have set
Speaker 2: aside for retirement. But they should help you to have
Speaker 2: a decent understanding of how much you'll need to set aside.
Speaker 2: But the bottom line is that there are so many
Speaker 2: other considerations, like whether you're going to have other sources
Speaker 2: of income beyond what you've invested in retirement accounts.
Speaker 3: You need to.
Speaker 2: Consider how much you're going to be receiving in Social
Speaker 2: Security payments that are coming in. Do you have some
Speaker 2: rental property, do you have some pension income.
Speaker 3: Maybe you're going to.
Speaker 2: Continue to work part time, like we talked about earlier,
Speaker 2: as you might be considering some different ways to transition
Speaker 2: from that full time, high paying job to something that
Speaker 2: maybe doesn't pay quite as much. So the more flexible
Speaker 2: you can be, the more options you'll have. And you
Speaker 2: certainly want to make sure that you take into accounts
Speaker 2: some of the additional sources of income that you're going
Speaker 2: to have in addition to how much you've soked away
Speaker 2: for retirement.
Speaker 1: Yeah, I'm glad you mentioned social Security. That's one of
Speaker 1: those things too that you have. If you're more flexible,
Speaker 1: if you can delay, you know, if it makes sense
Speaker 1: for you to delay, and then if you can delay
Speaker 1: taking social Security until later sixties or you hit seventy,
Speaker 1: which almost nobody does. But if you do that, you
Speaker 1: can get a guaranteed eight percent return every single year
Speaker 1: you wait to take it, and that can make a
Speaker 1: massive difference in the amounts you're able to collect in
Speaker 1: that check, meaning you have to invest last for your
Speaker 1: future too, because social Security is carrying more of the burden.
Speaker 1: It's meaning more of your monthly expense. And a lot
Speaker 1: of people, I think, especially younger folks, they're down on
Speaker 1: the role that social Security is going to play in
Speaker 1: their retirement. And we certainly don't want that to be
Speaker 1: your main source of income when you stop working. We
Speaker 1: want you to be proactively taking care of your retirement
Speaker 1: future now as you invest for the long haul. But
Speaker 1: for a lot of retirees, Matt, it is it is
Speaker 1: the main source of income. And so even with the
Speaker 1: awkward spot that social security is in from a political perspective,
Speaker 1: you and I we've talked about this, we still expect
Speaker 1: that at minimum, you're going to get paid seventy five
Speaker 1: percent of the amount that the Social Security Administration says
Speaker 1: you're due. We need to make changes to shore social
Speaker 1: Security up for years and decades to come, and there
Speaker 1: doesn't seem to be the political will to actually make
Speaker 1: that happen. But for those even for gen z ers
Speaker 1: out there thinking well, I'm not counting on social security,
Speaker 1: I mean, I think you need to invest and save
Speaker 1: for your own future, and you don't want to count
Speaker 1: on it exclusively, of course, but to assume that there's
Speaker 1: not going to be any social security would be highly unlikely.
Speaker 1: There would be some.
Speaker 2: Yeah, so heads will roll before.
Speaker 1: Entitlements are there. A gonna be a lot of politicians
Speaker 1: at office if that's the case.
Speaker 3: Yeah.
Speaker 2: So let's close this with the great words of Thomas
Speaker 2: soul And he's got a quote where he says that
Speaker 2: there are no solutions, there are only trade offs. And
Speaker 2: I think that it's no surprise that we're drawn to
Speaker 2: different headlines that taut specific numbers that we should be
Speaker 2: shooting for. I think we're oftentimes looking for a way
Speaker 2: to simplify things, right, Like, we live in a very
Speaker 2: chaotic world, and when there is chaos like this, I
Speaker 2: think we are as individuals, we try to create some clarity,
Speaker 2: and we try to attach our goals and our sites
Speaker 2: to something that feels very tangible. Yeah, saving for retirement.
Speaker 2: We that is that is not an easy endeavor when
Speaker 2: it comes to cobbling together multiple sources, whether that's through
Speaker 2: your roth IRA, maybe a little bit, a little bit
Speaker 2: of four and K, maybe a little bit of rental income,
Speaker 2: a little bit of social security, it is complex and
Speaker 2: it is difficult, and because of that, oftentimes we are
Speaker 2: looking for just a very simple, easy answer. There are
Speaker 2: no simple easy answers. But hopefully we have been able
Speaker 2: to reframe how it is that you think about retirements
Speaker 2: and that that will give you some actionable steps to
Speaker 2: help inform how it is that you think about retirement,
Speaker 2: but also actual steps that you can actually take that
Speaker 2: will allow you to get there, to not just feel
Speaker 2: like you're going to be prepared for the future, but
Speaker 2: to actually get prepared and to be prepared by the
Speaker 2: time you reach those later years.
Speaker 1: Or to realize that you already are preparing well because
Speaker 1: you're you've already you're already investing in nineteen twenty percent
Speaker 1: of your income and you're like, I'm well on my way.
Speaker 1: It feels like I need to do more, but maybe
Speaker 1: I don't. Yeah, you happen to strike it just right.
Speaker 1: You're not oversaving somehow you are living life in the
Speaker 1: here and now, you are finding balance while also saving.
Speaker 3: Four the future.
Speaker 1: You've reseat Goldilocks level, which is great. But I think, yeah,
Speaker 1: going back to kind of what I talked about at
Speaker 1: the very very beginning, that Sherlock Holmes approach, like do
Speaker 1: some observing, ask some questions, and keep doing that over
Speaker 1: the years. It's not Oh, I don't think it's a
Speaker 1: one time conversation or a one time thing. You have
Speaker 1: to kind of keep going back to that. How are
Speaker 1: we doing on our progress? And that's why you mentioned
Speaker 1: tracking your network. That comes into play too. But the
Speaker 1: more we're kind of following along and seeing how we're
Speaker 1: doing in our progress and are we continuing to save
Speaker 1: and invest at the rates we hoped at the rates
Speaker 1: we need to in order to achieve the goal that
Speaker 1: we have that's going to be different than everyone else's
Speaker 1: goal because we all have hyper unique situations. I think
Speaker 1: that that's an important ongoing conversation. But Matt, let's get
Speaker 1: back to the beer we had on this episode. This
Speaker 1: was called Double Clutch Nitro oatmeal stouts. This was from
Speaker 1: a brewery in Wyoming called Gruner Brothers. What was your
Speaker 1: take on this one.
Speaker 2: Well, I would say it was incredibly smooth with the
Speaker 2: nitro that they had in this can so any any
Speaker 2: beers out there that are they're not fermented, they're just
Speaker 2: I guess pumped with nitro. They're gonna come out really silky.
Speaker 2: If you're a fan of Guinness, you would be a
Speaker 2: fan of this beer because it's not carbonated with CO
Speaker 2: two actual carbonation, but it's with nitro.
Speaker 3: Yeah, yeah, it does.
Speaker 2: I guess is it nitrogen xax side?
Speaker 3: Is that? I guess?
Speaker 1: Well, the two things I wrote down were Guinness and
Speaker 1: silky like what you mentioned, because it does have bingo
Speaker 1: massive Guinness vibes with a little more of an oatmeal
Speaker 1: vibe going through because it is an oatmeal stout. So
Speaker 1: but yeah, if you like Guinness, this is kind of
Speaker 1: one of those beers it would be totally up your
Speaker 1: alley you would love. I personally do like Guinness. I
Speaker 1: typically I don't drink it very often. It's been a
Speaker 1: long time. Same but as and by the way, did
Speaker 1: you realize Guinness is actually one of the lower calorie
Speaker 1: beers out there. Surprisingly people don't think so interesting because
Speaker 1: it's so it feels so heavy and bready and people
Speaker 1: think that it's heavy, Yeah, but it's not. It's actually locale.
Speaker 1: But yeah, I think Guinness is a great beer, and
Speaker 1: I think this one was kind of in that vein
Speaker 1: just as good, probably a little bit better.
Speaker 3: Actually nice. Well it's called double clutch.
Speaker 2: Do you know what that's referring to.
Speaker 1: Is it like an old van or it looks like
Speaker 1: some sort of old truck that had two two clutches.
Speaker 2: So well, yeah, yeah, so I think with like I
Speaker 2: think tractor trailers still have to do this, but you
Speaker 2: have to double clutch, which means you have to push
Speaker 2: the clutch down in order to pull out of the gear,
Speaker 2: but then you have to repress it again in order
Speaker 2: to get it into the next year.
Speaker 3: So it's double clutch.
Speaker 1: I will say I'm miss driving a manual transmission car.
Speaker 1: I will do it again someday. And I hear that
Speaker 1: coming back into vogue a little bit. Did I tell
Speaker 1: you about driving my buddies. He's got like a it's
Speaker 1: like a seventies or maybe an early eighties FJ to
Speaker 1: get an FJ.
Speaker 2: Oh No, obviously it was a manual four speed, but
Speaker 2: definitely drives like an old truck or like an old
Speaker 2: tractor basically, And I will say, I'm patting myself on
Speaker 2: the back. I didn't stall out once.
Speaker 3: Look at you.
Speaker 1: Yeah, I probably would sall like, it's been so long,
Speaker 1: it's been so long.
Speaker 2: So long for me as well as I was. Yeah,
Speaker 2: was so nervous trying to parallel park an old FJ
Speaker 2: on a city street. Yeah, I was all sweating bullets.
Speaker 1: I get it. I would be too, I would be too.
Speaker 1: I still remember those first days driving to Manual. It
Speaker 1: was not pretty. I stalling out on main roads and
Speaker 1: stuff like that, But stalling out on a hill, Yes,
Speaker 1: what's more terrifying than But that's the worst. Especially when
Speaker 1: someone's like right up on your bumper. You're like, I'm
Speaker 1: gonna kill them.
Speaker 3: Yeah, yeah, please back up?
Speaker 1: All right, that's gonna do it. For this episode, you
Speaker 1: can find show notes links to some of the resources
Speaker 1: we mentioned up on our site at howtomoney dot com.
Speaker 1: Don't forget about the how to Money newsletter. Just go
Speaker 1: to how tomoney dot com slash newsletter. Sign up for that.
Speaker 1: It's free, it's fun, it's informative, and you'll get it
Speaker 1: in your inbox every Tuesday morning. But Matt, that's gonna
Speaker 1: do it for this episode until next time. Best Friends
Speaker 1: Out and best Friends Out