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