I am sharing a good article from Root Of God. I found it very logical and easy comprehension for any freshman college student. College is the time to start saving and investing. Happy Investing!
To Your Health… To Your Wealth… To Your Wisdom.
Saver Sam’s fraternal twin, Super Saver Samantha, is a slightly more frugal individual. She is a really good saver. Some say she’s a super saver. To appease the retirement gods, Super Saver Sam sacrifices 30% of her hard earned paycheck on the alter of savings, or $18,000 per year into her 401(k) and IRA.
After taking out investment contributions, Saver Sam is left with $54,000 per year which he spends diligently. Super Saver Samantha only has $42,000 left each year, which she gladly spends in a frugal manner.
Sam and Samantha both want to retire early, and both keep saving toward their goals. As Sam spends $54,000 per year, he must save around $1,543,000 in order to withdraw $54,000 per year to pay for his lifestyle (at a 3.5% withdrawal rate). Samantha, on the other hand, only needs $1,200,000 to fund her $42,000 per year spending habit.
So when can Sam and Samantha reach their retirement goals? Remember Samantha is saving more than Sam each year, so you expect her to save more money and reach her retirement goal sooner.
Sam does alright. He is on track to meet his savings goal at age 59 with $1,548,339 in his investment portfolio. Then, Sam can retire and live happily ever after to a ripe old age.
Samantha does even better! At the young age of 44, Super Saver Samantha passes the $1.2 million mark and grows her investment portfolio to almost $1.3 million! She will reach her retirement goal a full 15 years before Saver Sam will reach his goal.
Around age 46 or 47, Sam is cruising the internet, looking for his long lost twin sister. Eventually he finds her online profile and the travel blog she started when she retired at 44. Say what?! She spends a month or two each winter snorkeling and surfing in a low key Latin American beachfront community, and lives a generally awesome life. Without working ever again. But that’s impossible for someone her age, isn’t it?!
Slightly more attractive than a cubicle…
Sam gets a little jealous at this point, but figures Samantha might be able to give him a few tips on how to retire early. Sam and Samantha start comparing notes of their lifestyles over the last couple of decades. They found out they both lived comfortable middle class lifestyles in different parts of the U.S. Sam and Samantha both have decent houses and good cars, but Samantha is just a little more savvy and manages to spend a little less.
Her mortgage and housing costs were around $400 less per month because she bought a slightly smaller house in a slightly less swanky neighborhood. Compared to Saver Sam, Super Saver Samantha saves on average $300 per month by buying reasonably priced sedans instead of the latest luxury models. Samantha also keeps her cars for seven to ten years before replacing them with a new-to-her car. Sam lives it up and leases a beautiful new luxury car every three years.
Samantha also managed to save an additional $300 per month in taxes by contributing $18,000 per year to her 401(k) and IRA. Go ahead and add up Samantha’s savings each month — $400 on housing, $300 on cars, and $300 on taxes. That’s $1,000 per month or $12,000 per year Samantha managed to save without making major sacrifices. The payoff was retiring 15 years earlier than Sam.
Here is Samantha’s tip to Sam — to be a Super Saver, all Samantha had to give up was a little bit of house, and drive a slightly less new, less flashy car. She didn’t have to reuse dryer sheets, rinse and re-use her plastic sandwich bags, or make her own laundry detergent to retire at 44. Super Saver Samantha simply selected a few areas to be a little more frugal and made some smart choices early on to set her on the path to a very early retirement.
I hope you all enjoyed Saver Sam and Super Saver Samantha’s journeys to retirement! Just remember, spending less not only means saving more, it also means needing a smaller investment portfolio to retire or be financially independent.