How to Invest Your First $250,000 to Retire with $80,000 Annually

With Millennials reaching 42 and Gen Z not far behind, many will need to start to rethink what retirement looks like and how to invest to get there.

In 2023, France devolved into protests and riots over a two-year increase in the retirement age. By 2050, Europe will have 35 million fewer workers and almost 50 million more pensioners. The problem, there isn’t enough to support an aging populous for the next 20+ years.

In the US, Federal Reserve data indicates that the median balance in a retirement account in 2019 for a working household nearing retirement (age 55-64) was just $144,000. That amount will last a decade max, that’s with (hopeful/doubtful) social security benefits of $30,000 per year.

To make matters worse, retirement outcomes are heavily skewed by social demographics. Non-college graduates, people of color, and women will fall behind the 8-ball financially. It’s important to start evaluating your options today.

In this post, I’ll prove to you that if you can invest more than $9,000 annually for 15 years:

1. Your contributions can transform into a $250,000 portfolio,
2. Which will yield you $80,000 annually, and
3. The best part is that it won’t ever run out. Fingers crossed.

While I have to admit turning $135,000 into $80,000 annually for the rest of your life sounds like witchcraft, it’s definitely probable with a long time horizon. Below are some steps, philosophies, and ideas on how to build a portfolio strategy. Bonus, a lot of people ask what our holdings are, click here for the real-time TNFG Quarterly Tracker for our investments.

You will need north of $80,000 Annually in Retirement

Firstly, let’s investigate why you need $80,000 per year or over $6,667 per month. Currently, retirement expenses average around $45,000 per year. The real expense average was $48,791 per year, but we are rounding it down. Didn’t want to scare you too soon.

Using an inflation calculator $45,000 in 2023 dollars will become $113,921 by 2050. Why is that? Inflation, specifically the 3.5% kind. If you need to understand what inflation is all about check out From Inflation to Recession, How to Master Modern Economic Vocabulary.

Consumer prices, over the last three years, show us that nearly 2% inflation is a thing of the past. With current rates up 5%, we are likely to see a sustained new normal of 3.5% through 2050. As such, the new range of retiree household expenses will likely fall between $100,000 to $125,000 per year.

However, depending if you hold a steady beat of employment for the next 40 years, you will likely see your savings income supplemented by your social security. This is very important for those who don’t have a pension. Hopefully, these benefits come in at $30,000 per year.

So instead of $110,000 of retirement expenses, you would need closer to $80,000. I also did a full breakdown on this here, If You Think It Costs A lot Today, Check Out These 2040 Estimates.

But That’s Not All You Need to Consider…

The final part of the problem is the retirement goal.

If you want to reach $80,000 worth of withdrawals annually, just divide your desired goal by 4%. Your Investment savings goal should be $2+ million to make it work. How do you get $2 million in a portfolio?

Well, you will have to INVEST, especially during a recession.

You can’t succeed at this game by simply saving or wishing for better days. With the power of compounding interest, dollar cost averaging, and a bit of luck; you would be able to BUY while the market is down.

Oddly, most people panic sell while the market is down. You will have to muster the courage to do the opposite.

Simply, invert your fears. You don’t buy something that’s not on sale so why would you buy stocks when they aren’t 10% or 20% off?

But where do you invest?

Well, that part is easy too. Go with an ETF pegged to an index like the S&P 500, the most well-known being the $VOO – Vanguard Total Stock Market ETF. You really don’t have to overcomplicate things. Here’s a list of other ETFs just in case you are curious.

Invest Early to do more and work less

Time is a key resource to amass your millions. The more time your investments have to cook and stew, the better the end product tends to be. The second key resource is your own contributions. As such, the bigger the base monthly contribution, the faster your dollars start working for you.

Invested Monthly	Total Contributions	Total Interest Earned	End Balance
$100	$18,000	$15,761	$33,761
$250	$45,000	$39,402	$84,402
$500	$90,000	$78,803	$168,803
$750	$135,000	$118,205	$253,205

Say, you want to earn your first $250,000 by 2038 (15yrs) using the historical average 8% annual rate of return, here’s how much you’d need to invest each month to reach the goal.

From this example, the more you contribute per month gets you to your goal sooner.

Turns out, putting off investing for even a few years, will make you work longer and harder. When you start early and even imperfect, your money ends up working harder than you. Just START!

Invest and Be Comfortable at $2 Million in Retirement

Through the power of compounding, this initial $250,000 can transform into $2 million in 27 years with no extra money from you. That’s not too bad based on 15 years of investing upfront. It only ended up costing you $135,000. Or better yet, $9,000 annually.

By investing consistently and with a plan, you can end up COASTING toward your retirement. The next phase to consider will be how you withdraw that sweet cash. As mentioned briefly, experts recommend that you use the 4 percent withdrawal rule.

Years	Total Contributions	Total Interest Earned	End Balance
5	$0	$117,332	$367,332
10	$0	$289,731	$539,731
20	$0	$915,240	$1,165,240
27	$0	$1,747,015	$1,997,015

With $2 million invested in the market, you will be able to generate $80,000 per year in income for the rest of your life. That’s another easy calculation of $2 million multiplied by 4%. Check the math. How you spend it, will be up to you. The best part is that your total balance will continue to grow on average at 8%.

Done successfully, you will be able to maintain +4% or +$80,000 on average annually to add to your $2 million. It’s not a bad way to spend your retirement.

The End?

Let me run this back since it might confuse some people. The bow was too neat. So let’s do the math. Your $2 million portfolio multiplied by +8% average growth annually is +$160,000 per year. You can take out $80,000 and leave the rest. The remaining $2,080,000 will grow again the next year at 8%. In some years, it can go to +20%, and in others -20%.

All you have to do is stay the course.

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