I’ve always been upfront about this: I don’t have a lot of money. I’m not a crypto millionaire. I’m not anyone special. I wash dishes; I go to school; I live with my parents.
But I’m smart, or at least I like to think so (I did call XRB at ~.50c, but everyone thinks they’re a genius in a bull market, so I’m probably just luckier than most. And I’m better with money than the majority of my peers, even if that’s not saying much.
Which is why I want to make something really clear to the Millennials out there: Saving for retirement is a huge responsibility and, unlike the Baby Boomers (or even the Gen X’ers) before you, who could rely on pension plans and social security, the burden falls entirely on your shoulders.
In other words, start saving now. The title of this article sounds like elitist clickbait. Most people, especially from a traditionally blue-collar background, think, “Of course I’m going to be able to retire on $1m. That might not be a lot to the people out there driving Teslas, but I’ve never lived like that. I’ve always lived well below my means, so I should have no problem.”
You’re wrong. You’re really, really wrong.
Inflation Is Silently Stealing Your Savings
Let’s use the example of a standard 20 year-old Millennial with a goal of $1m by the time he retires at 65. The average annual inflation rate from 1913 to 2015 has been 3.22%. 3.22%, while still small by Zimbabwean or Venezuelan standards, is a metric fuckton. Say whatever you want about the importance of inflation (it’s arguably an important part of keeping the economy running), but the rising demand for speculative assets that have a “fixed” total amount based on scarcity, like gold and bitcoin, is obviously enormous. There are plenty of people looking for a steady hedge against inflation. In the world of personal finance, however, you can either have compound interest work for or against you. Let’s see what that $1m at 65 is going to be worth in today’s spending power…
But first, let’s go back 45 years and use the Consumer Price Index Inflation Calculator to see what $1m in 1973 would be worth today.
Roughly $5.7m. That’s right. 45 years ago, $1m was equal to almost $6m today.
Big bold text: $1m is going to be worth less than a quarter million in 45 years. If you want to be equivalent to a “millionaire” today, you’re going to need at least $4.1m by the time you retire in 2065.
Let’s be really pessimistic about the average life expectancy and say it only increases to 80 (it’s currently at 78.7). According to that link, however:
- A man reaching age 65 today can expect to live, on average, until age 84.3.
- A woman turning age 65 today can expect to live, on average, until age 86.6.
Which means that the average life expectancy is growing infinitely faster than the average old person’s retirement savings. But, in order to make the math easier and idiot-proof anything that I’m doing, I’m sticking with 80. And if you’re not saving for retirement, I’m going to go out on a whim and say you’re not taking good care of yourself, either. If you have $1m at 65, you have roughly $240k (in today’s spending power) to live off for the next fifteen years until you keel over and die.
That money’s mostly going to be in bonds at that point, so we’re not going to account for much growth (God forbid the stock market takes a nasty downturn right as you retire). $250k divided by 15 is $16k per year, just a few grand above the Federal Poverty Level. And that’s with the money growing with inflation.
This is why, when I make a bunch of money trading crypto, I don’t go blow it on stupid things I don’t need (except Chipotle; I fucking love Chipotle). It’s also why I’m 110% sure that, barring an enormous policy change, Millennial FIRE blogs are going to be a big business in the next twenty years, when everyone wises up and realizes they should’ve been saving once they started working.
Fingers crossed that machine learning makes traditional work obsolete.
Even if it does, though, I wouldn’t bet on the machine owners sharing any of their wealth with you, for the same reason you don’t share your wealth with poor African children: Everyone’s too far away from those that are struggling they forget how hard it is.
TL;DR If you have a plan to have $1m saved by the time you retire at 65 as a Millennial, you’re shooting way too low. $5m would be a good starting point if you have a family. If you’re not saving for retirement at all, consider it a pipe dream. No one’s going to do it for you, and Social Security payments will likely be so low as to be negligible, if they even exist at all.