Millions of Young Americans Are Targeting Early Retirement. They Might Achieve It. Can You?

Think about your financial goals. Are you hoping to go on a big vacation? Saving for a down payment on a home? Working on saving for retirement? How would you like to retire early? If retiring comfortably or retiring early are on your financial wish list, are you doing anything about that? Taking any particular actions? Many financial goals are more within our reach than we may think — as long as we take action and work toward them.

An interesting survey by the folks at SoFi Technologies found that the majority of Gen Z and Millennials were willing to give up eating at restaurants for five years in order to retire early. Here’s a look at how effective a strategy that is — along with what it might take to save up enough money for retirement.

Image source: Getty Images.

Giving up restaurants

Giving up eating at restaurants for a while can be a powerful way to save money or not — it all depends on how often you eat out, and what you tend to spend. Let’s say that you eat out four times a week, spending $40 each time. That amounts to about $160 per month, or $1,920 per year. That’s a meaningful sum, but if you invest that amount every year for 25 years (not just five years) and it grows at the average long-term annual growth rate of the S&P 500, 10%, you’ll end up with around $208,000. That sum probably won’t provide enough to retire on — but it could be a great way to save more every year and can help you get to an early retirement faster.

How much do you need to retire with?

How much you need to retire with will vary from person to person. Much depends on your cost of living and how much you expect to spend. The length of your retirement matters, too. You probably don’t know how long you’ll live, but if you’re retiring early, that means your nest egg will have to help support you for longer.

A well-known withdrawal strategy for retirement is the 4% rule, suggests withdrawing 4% of your nest egg in your first retirement year and adjusting for inflation in subsequent years. The table below shows what you’ll get out of nest eggs of various sizes — and it can help you get an idea of how much you might need to amass before retiring.

Source: Author calculations.

How to amass millions

There are some pretty big numbers in that table, and the thought of amassing that much can be daunting. But know that you probably can amass them if you save aggressively, invest effectively (such as via index funds), and stick with the plan for many years. (That last part is the hardest, as it’s easy to give up every time there’s a bump in the road.)

Here’s how your wealth can grow if you regularly invest meaningful sums and your money grows at an average annual growth rate of 8%:

Source: Calculations by author.

The table makes clear how powerful time is, so the earlier you start, the better. Also, the more you can sock away, the more you can amass. You may be able to exceed that $15,000 annual investment, in which case you might reach $1 million or $2 million or even $3 million even faster.

Factors to consider for retirement — and early retirement

Whether you’re aiming for an early retirement or a more typical one, here are some things to keep in mind:

• Plan to make good use of tax-advantaged retirement accounts such as IRAs and 401(k)s. The Roth varieties deserve special consideration, as they can allow you to withdraw funds in retirement tax-free.
• You won’t be able to start collecting Social Security retirement benefits until age 62 — and delaying longer will make your checks bigger. So think hard about when you might tap this valuable retirement income stream. Whether you start the checks rolling at age 62 or 70, you may need to plan to tap your retirement accounts more heavily until Social Security starts.
• Healthcare is costly and tends to become more costly as you age. So plan to make smart Medicare decisions as you approach age 65 and figure out how you’ll be covered until then.
• Relocating to a less costly region or a less costly home can free up a lot of money on which to live or with which to invest.
• You may want or need to work a little in retirement, at least in the first chunk of your retirement. This can take some pressure off your nest egg and help it last longer and it can be good for your psyche, too, as many retirees find themselves restless and missing the interactions and structure of working.

So whether you’re in Gen Z or the Millennial generation — or even if you’re older — don’t assume that an early retirement is out of reach. Just have a plan and take the necessary steps toward your goal.