Easiest Way for An American Family to Retire with One Million Dollars

The Neighborhood Finance Guy writes about financial literacy topics, main ideas, investment strategies, and retirement tips to help you make effective decisions and set S.M.A.R.T goals with your money. The information is free but the struggle is not sold separately.

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Saving 9 cents of Every Dollar Earned?!

According to the 2019 report from the US Bureau of Labor and Statistics, the average household brings in $82,352 annually, they end up spending $63,036 from housing to entertainment.

About $7250 per year in savings (less than 1%) and pension (about 8.2%) is no where near enough to retire comfortably. If we broke it down in dollar value, it means that the average family saves 8.80 cents from every $1 earned.

Let me repeat, the goal is not to work over 40 years just to struggle for another 20 years.

There is a better solution. It’s called Money Management. It’s not complicated and you don’t need to pay for a Financial advisor. I’m going to dish out a free path. Here’s the one financial life hack that’s universal.

If done correctly, the average family can retire with at least $1 Million Dollars. If you are impressed by the end, please share this with a friend. People don’t have to die poor and destitute.

Choosing the 50/40/10 Budget over the Old Way

1. Boosting Savings by 231%

Let me run through the Math quickly, the $82,352 average household income multiply by 83% weeds out the after tax of 17%. That leaves $68,352.16 to play with. I reworked the percentages below:

	Real Percentages	Cash Value	Change to Match Reality	Percentage Change	Final New Cash Value
Needs	41.50%	$34,176.08	+$8,000	+9.71%	$42,176
Savings + Investments	33.20%	$27,340.86	-$3,341	-4.06%	$24,000
Wants	8.30%	$6,835.22	-$4,659	-5.66%	$2,176.22
Taxes	17.00%	$13,999.84	—	—	—

The Focus Number is $24,000 in Savings Annually

This is how you shift money around on the macro level.

As you can see from the table above, the largest three expenses for American households ends up being Needs (51.21%) and Investments (29.14%) from the after tax perspective. This would effectively boost savings + investments 231%.

2. Investing $24,000 Annually (or $2,000 Monthly) at 8%

Year	Total Contributions	Total Interests	End Balance
5	$120,000	$25,889	$145,889
10	$240,000	$120,249	$360,249
15	$360,000	$315,213	$675,213
20	$480,000	$657,998	$1,137,998
25	$600,000	$1,217,982	$1,817,982
30	$720,000	$2,097,101	$2,817,101

After 20 years, that’s $1M Portfolio

Depending on when you start, the better the outcome.

I believe this represents the proper motivation to becoming a millionaire in your lifetime. $2,000/month really breaks down as $66.67 per day.

Where can you find money?

Per Business Insider, the average Amazon Prime member is reported to spend around $1,400 per year, while non-members spend $600. With $7,200 annually contributions to an HSA, families can same as much as $1,224 on taxes.

Basically, if you pull back on the spending throttle, you will find real value for your money. If the default savings amount was $7,250, the bulk of the $16,750 comes from reducing eating out, luxury cars, and a home that’s too big and unaffordable.

So am I asking for you to invest $24,000 in yourself and your family annually?

Well that answer rests with you. For my family, it’s a “Hell Yes.” For others, the conspicuous consumption lifestyle is a must.

However there an easy way to back into this, the 5-year Financial Hyper Escalation shortcut.

3. What if you saved and invested for only 5-years?

If you go back to year 5 (Table #2), the ending balance is $145,000. Let’s say you made $0 contributions going FWD. By that, I mean absolutely nothing. You can even spend the entire +$24,000 per year on travel and fun stuff. Go nuts for the Gram. Where will your investment be in?

Years	Total Interests	Ending Balance
+15	$314,964	$459,965
+25	$848,028	$993,029
+35	$1,998,875	$2,143,875

Crazy how a bit of hard work pays off.

Your simple contribution of just $120,000 turned into a pretty penny.

I’m just the bearer of good news. Opportunity and wealth is in your grasp. However, the financial heavy lifting is still yours to carry.

Bonus: The $24,000 does not include any matching contribution you receive in a 401k, 403b, or 457b. Bonus if you don’t want to freak out too much on the investments. Just contribute the max of $19,500 per adult and $3,600 in an Health Savings Account, and dump the rest in a ROTH IRA in M1 Finance – voila super diversified investments.

If you want to know more, I also have strategies in which you can keep most of your money active in the market earning at least 6% in dividends. Check out How to Beat Compounding Generational Debt with a $1,000,000+ ROTH IRA Investment Portfolio.

Disclosure: This post is brought to you by the Neighborhood Finance Guy. We highlight financial literacy information, resources, and more on your way to money management goals and personal wealth. Our goal is to help you make S.M.A.R.T decisions with our money. We do not give investment advice or encourage you to adopt a certain investment strategy. Your personal finance is up to you. If you take action based on one of our recommendations, we don’t earn a dime as of 5.2021. We operate independently.

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