‘$1M? That's it? No, thank you': Ramit Sethi challenges the retirement advice most Americans follow
It's the advice you hear passed around like a family recipe: Work hard, save consistently, and one day you'll retire comfortably. But what if this so-called tried-and-true advice is far from a recipe for success and more like a blueprint for disappointment?
Ramit Sethi, bestselling author of I Will Teach You to be Rich and Money For Couples, didn't hold back as he reflected on what he considers the worst financial advice he has ever received.
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'Get a job at an industrial company and work there for 40 years so that I can retire with $1M in the bank,' he told Moneywise. 'I was like $1 million? That's it? No, thank you!'
The old axiom about saving $1 million for retirement hasn't changed much.
Today, many Americans think they'll need $1.46 million to retire comfortably, according to a Mutual Life study. But Sethi rejects any such advice.
Sethi says the issue isn't just oversimplified math but the mindset it fosters: grinding away for decades only to scrape by on a fixed budget in retirement.
For one thing, he argues that by focusing solely on saving and not spending money meaningfully, people miss out on living a rich life. He thinks it's too long to wait till retirement, especially when the average age of retirement is creeping up, standing at 61, up from 57 in the 1990s, according to a 2022 Gallup poll.
When many Americans finally do retire, their visions of their golden years — leisure, frequent travel, and freedom from the constraints of a 9-to-5 — clash with financial reality. According to the Federal Reserve, households headed by those aged 45-54 have an average retirement account balance of $313,000, far from what's needed for a secure and fulfilling retirement.
This disconnect is why Sethi encourages people to rethink their financial approach, shifting the focus from reaching milestones to developing a strategy that builds wealth over time.
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While a $1-million retirement goal might seem out of reach, there are steps you can take to build a stronger financial future. One approach Sethi encourages is harnessing the power of compound interest
'The power of compounding is something that is truly hard to understand until you see it over and over again,' Sethi explains.
Compound interest works by allowing your money to grow not just on your initial contribution, but on the accumulated interest as well – creating a snowball effect over time. For example: A 35-year old investing $300 per month with a 6% annual return would have $301,355 by the age of 65. But if that same person started earlier, at age 25, investing the same amount every month, they'd end up with hundreds of thousands more: $597,337, nearly double.
Even though the late investor only contributed $36,000 less in total, they lost out on the exponential growth that comes with compounding over decades.
However, it's not just about starting early. Maximizing contributions to tax-advantaged accounts like 401(k) or IRAs, taking full advantage of employer matching programs and diversifying your investments can boost your retirement savings. Taking full advantage of employer matching programs is practically 'free money' that can supercharge your savings.
Don't minimize the value of budgeting , which can free up more cash to invest.
With consistent effort, thoughtful planning, and focus on long-term growth, building the retirement of your dreams is well within reach.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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