Your Ticket to a $1 Million Retirement

[Eagle43]

Saw another article from Paul B. Farrell and I'm starting to like this guy. His thesis today is: Save 10%, no matter what. I have told my kids and grandkids this, to no avail. However I believe it and I practice it, even now. Save 10%, and let compound interest do the rest.

His example is the usual. Starbucks triple Caffee Americano and muffin might cost $5.00, about $150 a month. Save it in a tax-free vehicle starting at age 25, and you'd have about $955,000 at 65 (assuming 10% compounding interest). Long-term compounding is the key. Most ERs don't want any part of age 65 to retire, but the principle is the same. 10% will work miracles, over the long-haul.

BTW, Starbucks' 5 stores in Seattle have grown to 9000 world-wide worth about $20 Billion. Every Christmas season I buy a bag of their Christmas blend, which is over-priced. But, that's it for the year.

 

[Spanky]

The present value is only $17,783.77 (Future value = 955,000, 10%/12, 480 periods).

Spanky

 

[RAE]

If you spend $150 at Starbucks each month on your muffin and coffee, not only will you likely be working until you drop, but you'll probably die prematurely from heart disease, from consuming all the trans fat in all those muffins over all those years. My advice: skip Starbucks, make yourself a cup of tea and whole wheat toast at home before work, and you'll not only live a longer, healthier life, you'll be retired at a much earlier age.

RAE

 

[JOhn Galt]

You know, I fully agree with this "saving 10%%, compounding, skipping the Starbucks muffin and latte",
but................there is another side to this. At my age
(and budget), I am constantly considering issues like
this. My time to compound is somewhat limited now,
but where to draw the line on saving a dime here and
a nickel there? The result is that I frequently splurge
on the Starbucks. I enjoy it. No muffins though. Still on
the Wabmester dist

JG

 

[charlie]

An occasional double meat double cheese #4 at
the Sonic is my downfall ...... Clinton knew at
least one good thing.

Cheers,

Charlie

 

[cute fuzzy bunny]

I've only been in a starbucks once. Never again.

My dad, wife and I were taking the dogs on a day trip the summer before last. We decided to grab some coffees and pastries on the way and gosh, would you believe it, there was a starbucks right there where we were!

My dad and I got a medium coffee each and a little cinnamon stick pastry thing that I could have eaten about 30 of without filling up. My wife got a small pastry and a large milk. Our bill was $14. I was stunned. They charged us $4.50 for a large milk. I said "uhhh...milk is $1.50 a gallon at that supermarket right over there!"...to get the smarty reply "Then go over there and get it..."

When I consider that I used to buy a newer and more expensive car every 18-24 months, and used to spend mid to high 5 figures on meals and bottles of wine every year, had I grown a brain a little earlier in my life I could probably have retired in my early 30's instead of my late 30's and had twice as much in my nestegg.

Little things add up quickly too. For someone right out of school at their first job, putting the 2% minimum into their company 401k in an s&p500 fund or target retirement 2045 fund and packing their own lunch will probably lead to a potential retirement in their 50's with very little further thought to it.

Now the real ticket might be that old post of getting a 1 way air ticket to a country with really, really nice prisons, buying a baguette and holding up a bank with it.

 

[Tadpole]

I see no reason to teach children when you could show them. Why not set up an account when they are born then add $10 month to it until they get their first job. Then help them assume control by setting up a split in their pay check of 10%. Give them total control after college or at a pre-determined time.

Some will blow it, some won't. It will show which is which quite early.

How much do you think $1M will be worth 30 years from now?

 

[Helen]

I see no reason to teach children when you could show them. Why not set up an account when they are born then add $10 month to it until they get their first job. Then help them assume control by setting up a split in their pay check of 10%. Give them total control after college or at a pre-determined time.

Some will blow it, some won't. It will show which is which quite early.

I like your post, Tadpole. Some of us just have to learn the hard way, as my Father used to say. He was a typical "Millionaire Next Door", but I wasn't smart enough to learn enough from him.

While I never got in trouble with debt, I also did not start saving until I was 38. It's a hard push, and I think I've made every mistake possible along the way - the tech wreck was costly - but I should be out by 56, eight years from now.

We are planning to pay our mortgage off this year. During our last year of employment, our household annual retirement savings should be close to $90k.

-helen

 

[retire@40]

Save it in a tax-free vehicle starting at age 25, and you'd have about $955,000 at 65 (assuming  10% compounding interest).

I wouldn't base my 40 year plan on making 10% each year. I use a 6.5% growth rate and sometimes I even worry that's too high.

 

[retire@40]

The present value is only $17,783.77 (Future value = 955,000, 10%/12, 480 periods).

Why would you use a discount rate of 10%? Don't you use the inflation rate of about 3% to determine present value? That would make the present value $293K, not $18K.

 

[ESRBob]

Why would you use a discount rate of 10%? Don't you use the inflation rate of about 3% to determine present value? That would make the present value $293K, not $18K.

Gotta jump in and support retire@40 on this one, spanky. Use the inflation rate to discount back to today's dollars, not the rate at which the money earns interest/capgains.

I will make a lot of enemies on this one, but I got off the bean a couple years ago and have felt fitter and clearer ever since. Caffeine is a highly addictive, if wonderfully seductive drug. Starbucks has more in common with a drug pusher than any other business out there.

If you don't think coffee is addictive, try thinking back to how many headaches you've had recentlly, and try to analyze whether they coincided with times you were a bit late getting your morning latte or skipped it altogether...

Aside from the headaches, caffeine does a lot of other bad things to your body. Read Caffeine Blues, wake up to the hidden dangers of america's #1 drug (stephen cherniske) or Kicking the coffee habit (Charles Wetherall) if you want to know more.

Even decaf isn't the whole answer, though to mangle Richard Nixon, it might be a 'halfway house to something better.'

 

[Marshac]

Aside from the headaches, caffeine does a lot of other bad things to your body.  Read Caffeine Blues, wake up to the hidden dangers of america's #1 drug (stephen cherniske) or Kicking the coffee habit (Charles Wetherall) if you want to know more.

It has been shown to protect animals from lethal doses of radiation though.... seriously, I kid you not-

http://www.iop.org/EJ/abstract/0952-4746/19/2/306

So for the average man, when those mushroom clouds go up, down about 6.5g of caffeine, about 33 200mg no-doze pills... or about 66 cups of coffee. You won't sleep for days.... unless you smoke.... the halflife of caffeine is much much lower in smokers than non-smokers.

 

[Spanky]

Why would you use a discount rate of 10%? Don't you use the inflation rate of about 3% to determine present value? That would make the present value $293K, not $18K.

You are correct. The discount rate should be that of inflation. If 4% is used, the PV will be: $193,325.

Spanky

 

[Spanky]

Caffeine is a highly addictive, if wonderfully seductive drug. Starbucks has more in common with a drug pusher than any other business out there.

Yes, it is addictive. I am still trying to kick the habit. At work, we get free Starbuck or Caribeau. That makes it harder to quit.

Spanky

 

[Janie]

Hubby bought me a Mr. Coffee espresso maker for Xmas. The best part is that I can use about half the coffee I used to put in the drip maker and make a cup that's just as strong if not stronger... I make myself one or two double-shot Americanos every morning. A half-pound of store-bought fresh ground espresso lasts about 10 days, so that works out to about .40/ day, and I usually make 2 cups per day. A double-shot Americano at Starbucks costs around $2.25!

 

[zakenjanei]

...

My dad and I got a medium coffee each and a little cinnamon stick pastry thing that I could have eaten about 30 of without filling up. My wife got a small pastry and a large milk. Our bill was $14. I was stunned. They charged us $4.50 for a large milk. I said "uhhh...milk is $1.50 a gallon at that supermarket right over there!"...to get the smarty reply "Then go over there and get it..."
...

hm....sounds like the ticket to a $1 Million retirement
is to use the $150/month to buy SBUX instead...;-)

Joe