The Millennial Retirement Guide

Welcome to the letter this week. I am stoked about this topic and hope you enjoy and take something away from it. Money and finance have become a fascinating topic for me over the last several years. I didn’t totally expect that to happen, but I’m going to keep pulling at this string.

I don’t struggle to make conversation with people, but a conversation topic that often fizzles out quickly is money. It specifically tends to dry out with people on the topic of retirement, investment, and budgeting. I’m always interested in talking with my colleagues about how they spend their money and how they think of the future. But, more often than not it is not a topic many of my peers seem excited to engage in.  

It’s become a forgone conclusion for most millennials that we will “retire” one day. However, most millennials’ idea of retirement is vague. Often, the best we come up with is that retirement means working until we don’t have to anymore. Many of us are assuming we will reach that glorious day when work ends and the freedom of retirement finally begins.

I: Retirement and the Death of Pensions

Here’s the problem: Millennial retirement is NOT Boomer or Gen X retirement.

Millennials today have grown up under the pension generations. The idea of retirement as we millennials know it is largely built on the idea of a pension. Pensions have long been a fantastic source of cash flow for retirees. Corporations, the education system, and the military have offered pension plans to employees for years.

Here’s where the problem deepens. Pensions are gone. Most corporations and even the military have stopped offering pensions.

Pensions are a thing of the past. What I see in my generation is that we haven’t grasped what this means for us. As pensions disappear, so does traditional retirement. This means as millennials, we are on our own to build our financial future.

Millennials must adjust their aim. I believe millennials should no longer aim for a nebulous idea of ‘retirement’.

Instead, we must aim for financial independence.

Financial independence is defined as: establishing income from assets that pays for all your expenses, allowing you to work (or not work) on what you choose, when and where you choose it.

In terms of traditional retirement, the idea of spending your best years working now in order to not work later is archaic. A more fulfilling life is to work now with purpose, towards the goal of financial independence. Then your ‘retirement vision’ shifts towards pursuing fulfilling work of choice, rather than giving up and golfing after age 65.

II. Building Your Own Pension

Since pensions are a thing of the past, Millennials must take it upon themselves to build their own.

Enter assets.

Assets, as defined in the book, Rich Dad Poor Dad, are anything that increase in value over time and/or produce cash flow. They make you money, not cost money. This includes stocks, bonds, real estate investments (for profit, not for residence), owning a company and more.

Intentionally choosing to build assets as a millennial is the path to financial independence. Part of building assets is managing liabilities – items that are a cash expense and/or not guaranteed to increase in value: your residence, vehicles, clothing, vacations, etc. More to come on managing liabilities in future letters.

Do you know how much you need in assets and by what age in order to become financially independent? If so, do you know how much you must earn and invest now to achieve this? Most millennials do not and I will highlight an outside perspective on this.

III: The $10M Elephant

Grant Cardone, billionaire real estate investor and entrepreneur, argues that millennials and younger will need to have $10M in assets to be secure in financial independence. This is multi-purpose:

• Financial independence means having income generated by assets you own, as opposed to income you spend your time working for. This leverages money for money, rather than time for money. $10M in assets will generate the cash flow needed to live freely for the rest of your life.

• Most people don’t prepare to cover their families for potentially life-changing circumstances such as medical emergencies and lawsuits. Cardone argues that $10M is necessary to establish peace of mind considering all possibilities.

For those that haven’t considered a total number needed for financial independence, many financial planners tell millennials our retirement number is $3-4M.

However, I believe that millennials must aim higher. As of 2024, 9% inflation, disappearing pensions, and political uncertainty are going to require our generation to be more focused and intentional than our parents’ generation. No one is coming to save us and we must become financially independent, thus Cardone proposes the $10M target

I’m not smart enough to claim to know ‘the number’ And this is not as much about getting to exactly $10M as it is having a strong goal and implementing systems to pursue it. This is about becoming conscious to our need for financial independence and establishing a higher goal.

And honestly, the number is going to be different for everyone based on lifestyle and location. $10M in California for a heavy spender may not go as far as $4M for a frugal retired couple in Texas. Either way, consider these scenarios.

Given the market returns 9% per year over the next 30 years:

• Starting at $0, $2,000 invested per month grows to $3.4M

• Starting at $0, $4,000 invested per month grows to $6.8M

• Starting at $0, $6,000 invested per month grows to $10.2M

This is all it takes to start. How is this? Compound interest.

IV: The Good News

Successful investing for the future does not require sophisticated knowledge. In fact, it’s better to start with little to no investing knowledge. I’ll explain why.

Although we see many hot topics of the day like Gamestop and Bitcoin, achieving financial success does not require you to be the man behind the curtain, picking stocks.  In fact, it does not require any specific investing knowledge. Successful investing is not speculative. Gamestop and Bitcoin are speculations, not investments. Real investments need no guess work and are a matter of simple data.

Tony Robbins highlights a few simple, yet powerful facts in his financial book, Unshakeable:

• The US stock market has returned 10%/year over the last 100 years.

  • This is important because of the power of compound interest.

  • Albert Einsten even recognized this, having quoted, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.”

• According to Robbins, here’s what that means: since the US public market is going to keep marching along at 10% average annual returns over time (barring an apocalyptic event, in which our money won’t be worth much anyway) the real risk comes from not putting money in the market. Money uninvested is losing value year over year.

• If you and I could buy into the US public market, we would be able to plan on these returns providing for our financial independence.

• More great news: You and I do have access to US public market returns at almost no cost through low-cost index funds. These are stock funds whose holdings and returns match the makeup of the market. So when the S&P grows 10%/year, so do corresponding index funds.

• These types of funds are what many 401k’s are invested in, but at varying costs (more on this in future letters).

When you own stock in the market through an index fund, you own a piece of every one of the largest 500 US companies (S&P 500). This means you take advantage of being a business owner – you don’t work in the business, you own it and it pays you – otherwise known as an asset (thank you again, Rich Dad Poor Dad).

I am reiterating that this is good news because it is easier than ever for everyday millennials to allocate their money to assets, own the best companies in the world and support their future financial independence.

Conclusion

So, as I mentioned, rather than requiring specialized stock trading knowledge, this path to financial freedom just requires a mindset shift:

1. You must recognize that no one is coming to save you financially and you must build your own financial independence.

2. You must have a desire to pursue it.

3. You need a concrete goal to attach your efforts to. Use something from $4M-$10M to get started.

4. You must set your financial plan to contribute monthly towards this goal, by investing in assets (i.e. index funds to start).

Financial independence is 80% mindset and 20% execution. It does not require sophisticated investing. It just requires a goal with intentionality. It is extremely possible to start one step at a time. Millennials’ major problem is that we don’t realize that we need a different approach that we have been given. For those willing to make the shift, even if they are late to the game, there is much hope.

I want my generation to understand this, so that we can provide for ourselves and thrive. We won’t need to look to the government or anyone else rescue us financially. Rather, those who are financially independent can be the ones to help others.

There is power in being financially independent, for anyone who is willing to walk the path.

P.S. In coming weeks, I will be writing more about money. I will be putting out a guide on some of the tactics I’ve used around my $401k, IRA, and other investing and budgeting decisions for a reference for others.

P.P.S. I am not a financial advisor. This letter and future letters are not investment/financial advice.