When it comes to investing, building wealth should not be left to chance or lady luck. If we assume that the average life expectancy is 76 years old and followed 100 young people today, how many people would be comfortable at age 65, and what would be their circumstances?

-24 people out of the 100 would have passed away usually by avoidable causes assuming the life expectancy of the average person in your country was 76 years old.

-Another 54 people would rely on their local government to supplement them with a basic pension as they have failed to acquire enough money to retire.

– Another 16 people would have no choice but to continue to work to keep their households afloat

-Only around 5 people would be financially independent. These people have enough to support themselves, have a local holiday, and buy a few luxuries once in a while. They still however need to stick to a budget to conserve their capital and maintain the status “financially independent”.

-Only one person, yes one person would become wealthy. These people would have the ability to do what they want when they want and with whom they want.

Now I am sure you are here to be a part of that 1%.

Keep in mind that the aim of this blog is not to convince everyone that he or she has to become a multi-millionaire to gain financial independence.  Rather, the idea of this course is to show you that an average person with the right strategy and mindset can build lasting wealth.

If we use the USA as an example and some figures from Vanguard one of the largest 401k plan administrators in the USA:

I would just like to again point out that there is nothing wrong with a retirement fund or superannuation if it was your chosen path and you were dedicated since your early 20’s. Take a look below at what could happen if you started early thanks to your friend compound interest.

The assumptions that are used in the below chart include:

• The numbers are more forward-looking vs. backward, since 401k contribution limits were lower in the past (in 2021, the 401k contribution limits are unchanged since last year, but the limit was raised $500 from 2019 to 2020).
• You start full-time employment at age 22 at a company that provides a 401k, without a company match.
• You contribute $8,000 to your 401k after the first year, then from the second year onward, you contribute the maximum annual amount of $19,500.
• The “No Growth” column shows what you could potentially have in your 401k after so many years of a constant $19,500-per-year contribution and no growth.
• The “8% Growth”* column shows what you could potentially have in your 401k after so many years of a constant $19,500-per year contribution (ignoring catch-up contributions but those over age 50 can actually add an extra $6,000 per year into a 401k) compounded over the next 43 years.
• The difference between the two columns emphasizes the power of growth, compounding over time. By starting early and enjoying historically average returns, at age 65, an individual could turn $827,000 of contributions into over $6.6M dollars.

AGE	YEARS WORKED	NO GROWTH	8% GROWTH
22	0	$0	$0
23	1	$8,000.00	$8,000.00
24	2	$27,500.00	$29,700.00
25	3	$47,000.00	$53,136.00
30	8	$144,500.00	$201,624.83
35	13	$242,000.00	$419,803.64
40	18	$339,500.00	$740,379.90
45	23	$437,000.00	$1,211,411.59
50	28	$534,500.00	$1,903,511.67
55	33	$632,000.00	$2,920,433.76
60	38	$729,500.00	$4,414,625.94
65	43	$827,000.00	$6,610,084.46

*Generally, financial planners say the expected rate of return for a 401k is between 8% and 10%.

Now here is the reality though, the current average 401(k) /IRA Balance saved per age group is as follows in the US:

Assuming your average life expectancy is 84 years old and you plan to retire at 65 years old.

Actual 401(k) balance averages from Vanguard:

AGE	AVERAGE 401K BALANCE	MEDIAN 401K BALANCE
22-25	$5,419	$1,817
25-34	$26,839	$10,402
35-44	$72,578	$26,188
45-54	$135,777	$46,363
55-64	$197,322	$69,097
65+	$216,720	$64,548

For illustrative purposes let us assume you managed to save $400,000 for your retirement and that it is invested at 6% after-tax and your household spending is around $46,000 per year. How long do you think it would last you?

Year	Capital Remaining	After tax Income	Living expenses+inflation (3.5%)
0	400,000	24,000	46,000
1	384,000	23,040	47,610
2	359,430	21,565	49,276
3	331,719	19,903	51,000
4	300,621	18,037	52,785
5	265,873	15,952	54,632
6	227,192	13,631	56,544
7	184,278	11,056	58,523
8	136,810	8,208	60,571
9	84,446	5,066	62,690
10	26,821	1,609	64,884
11	-36,454

After 10 years, more money would be spent than there is left in your retirement fund or superannuation.  For the first four years, the retiree is comfortable and believes they still have plenty. Sadly, what happens in the next two years, is the retiree realises that they can no longer afford to be free-spending and must either find a side job or greatly accept a reduced standard of living. I am sure you know someone in your community or family that has had to go back to work after a few years of retirement because their capital just could not sustain their standard of living.

A lot of retirement planning has to do with the individual spending pattern of course and the reality is the recommended amount of capital to retire more comfortable is more towards the $1000,000 mark.

An example:

The accumulated investment savings by age 65 that could provide an annual retirement income adjusted for inflation and assuming your life expectancy is 91 and you withdraw 4% per year.

Savings value at age 65	Annual income from savings
$300,000	$12,270
$1,000,000	$40,900
$1,500,000	$61,350

The hard reality is very few people are disciplined and would have started investing at age 23. So, for the majority of people, the gap continues to grow and grow and in the next 10 years, you will probably need double what you needed to retire today. So yes, you would need around $1800,000-$2000,000.

This is not to scare you but to just emphasize that even a $1000,000 in 20-30 years will not have as much buying power due to inflation and thus will not suffice as a comfortable pension in the future.

Which is quicker, trying to save a $1000,000 or trying to acquire assets worth a $1000,000?

If you are ready to acquire that asset and find out how average income earners can achieve long-term financial independence then join us in boosting your cash flow with our tailored CFO services from M&J.