Trent over at The Simple Dollar explains that if you’re a twenty year old with no debt, saving 20% of your current salary until your 40 years old will ensure a healthy retirement.
The math is pretty simple, and better yet, cautionary. By and large, though, if you live below your means and put that ‘extra’ money away diligently, you’re looking at an early retirement.
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If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation.
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