Maybe you’re not looking to retire early, but you’re probably looking to retire at some point. This is a fringe financial movement that has gained popularity among millennials and stands for financial independence retire early. It is usually associated with the FIRE movement. The best way to figure this out is by calculating when you’ll reach financial independence.įinancial independence (FI) means that you can generate enough income from passive sources, like your investments, to fund your lifestyle with no fulltime job.
To do this, you need to figure out what you want your annual income to be when you retire, and how much you need to have invested to get that. Even if you start saving early, it is important to understand if your current contributions will get you to the retirement you desire. If you’re starting a little bit late on your retirement savings, you’ll have to make larger contributions, but you can still reach your goal of a fruitful retirement.
(For info on the types of retirement accounts, see this post.) Start a retirement account today, and keep reading to learn how you can still reach your retirement goals. If you’re already 30 and you’re like OMG I’m f***ked! Better late than never. Just start investing in a retirement account now. If you’re in your early 20s and reading this, you’re in good shape. On top of that, 16%, or $36k of your earnings will be from your contributions, instead of only 8%. That’s a difference of $406,452 because you didn’t benefit from compound interest for 10 more years. In this scenario, by 60 you will only have $226,048. Let’s use the exact same scenario, but say you started investing at 30. $584,405 will have been made from compound interest. Only 8% or $48k of that will have been from your contributions. If you start investing at 20 and invest $100 a month until you’re 60, and receive a 10% annual return, you’ll have $632,500 at 60. Let’s take a look at a real-life example.
When you start investing early for retirement, you have more years to earn interest on your interest, which can lead to significant wealth generation. Next year you’ll earn 10% interest on $110, so you’ll earn $11 and have $121. If you invest $100 and earn 10% interest this year, you will have $110. Compound interest is your BFF when it comes to long-term investing because it allows you to earn interest on your interest. The benefit of investing early for retirement is compound interest. Starting to invest in your retirement early gives you a serious leg up on being able to one day live your retirement dream, but the majority of us will spend our youth ignoring the enormous benefits of starting to save early for retirement, and instead spend all of our hard-earned cash on things that provide us short-term gratification. While most of us have dreams of grandeur when it comes to our retirement, few of us ever get there. When you envision your retirement, what do you see? A vacation home on the beach? Finally being able to travel around the world whenever you want? Whatever your ideal retirement life is, I bet it doesn’t involve anxiety over mounting medical bills and a dwindling cash supply.