Today’s entry in the Cubert canon is a kind of sequel.
A few weeks ago I wrote about how I wasted my 20s and early 30s but still ended up in a spot where early retirement was possible. Want to make a million dollars in ten years and maybe retire early? Here’s a more general look at the math and steps behind a “Million Dollar Decade.”
The setup: a couple, both 30, starting with a net worth of negative $100,000 thanks to years of just getting by and student loans. They may have made a few questionable purchases—new cars, a couple of trips—but this is a familiar scenario. To make it a bit harder, they had two kids right before turning 30. Kids affect budgets, but you can reduce costs without missing out on parenthood.
Both earn $60,000 a year. They used $20,000 from joint savings and wedding gifts as a down payment on a modest two-bedroom, one-bath rambler—about 800 finished square feet—perfectly adequate for now. They canceled some credit cards and committed to paying off balances monthly, keeping only the Citi Costco Visa.
They get serious about retirement savings and each contributes 10% of pre-tax pay into their 401(k)s. The plan matches 100% of the first 3% contributed. After year one their joint 401(k) sits at $15,600. Assume administrative fees average 1%.
The first four years are tough. Childcare is handled with help from nearby grandparents while mom returns to work after two maternity leaves. There are no raises at their companies, but they keep contributing 10% to their 401(k)s. After four years, their combined 401(k) balance is $87,939 (assumes a 7% return, 2% inflation adjustment, and 1% fees). They’ve paid down some student loans at 5% interest but are still making minimum payments—balance down to $87,986. Suddenly their net worth is about negative $47, not counting home equity.
Then things change. Mrs. Case Study gets a promotion that brings her pay up to $75,000 a year. Mr. Case Study earns a surprise 5% raise. From years 5–10, both receive modest 2% cost-of-living raises.
Here’s the punchline: by living on $40,000 a year, this family can save a lot over ten years. Where others might upgrade kitchens or splurge on ski trips, they keep their lifestyle steady and invest the rest.
401(k) at year 4: $87,939
401(k) at year 10: $429,012
They’ve also been contributing pre-tax to an HSA:
HSA investments at year 10: $73,918
Their student loan was $87,986 at year 4. By year 10 it’s down to $51,226 after refinancing the balance to 2% interest, cutting total interest paid to $21,242 instead of $58,389 at 5%.
The house story: bought for $150,000 at year 0, the market lifts it to $200,000 in ten years. They and a helpful father-in-law finished the basement, adding $20,000 in value. By year 10 the mortgage balance is $99,872, and they’ve built about $100,000 in home equity.
Net worth at year 4 (including home equity): $71,797
Preliminary net worth at year 10: $602,930
What’s great about living below your means? You get to enjoy life without blowing your raises. Year after year they saved as much as possible while keeping living costs around $40,000. The basement project bumps expenses to $50,000 for a couple of years. They generally take road trips, and every other year they splurge about $5,000 on a nicer vacation, which raises those alternate-year expenses to $45,000.
Across the decade they’re saving roughly $36,000 a year after expenses. Much of that goes into Roth IRAs—$11,000 a year—which grows to $162,619 in ten years. Add that to the net worth:
Almost net worth at year 10 (including Roth IRA): $765,549
Life throws curveballs—health scares, big repairs, car replacements. I’ll assume a few modest hits: $3,000 for a tree removal in year 3, $5,000 for a roof in year 5, and a $5,000 used car in year 9. Most years they cover maintenance with a $2,000 home-and-garden budget. Even after taxes, pre-tax investments, and household costs, they have about $24,000 leftover each year. They invest that in a low-fee S&P 500 index fund.
After 10 years, that post-tax account grows to $354,806 (thanks to tiny fees of about 0.005% compared with 1% elsewhere). They use part of it to pay off the remaining student loan balance ($54,271).
Net worth at year 10: $1,066,079
That’s a million dollars. Nice work.
Common wisdom says you need about 25x your annual spending to retire—25 × $40,000 = $1,000,000. Using the 4% rule, you can withdraw 4% of that million each year without draining the principal.
“But wait,” you say, “they only have $354,806 in accessible cash now—they’re short $645,195.” True. They still have $429K in retirement accounts, plus Roth IRAs and HSAs, which will fund later years. To bridge the gap from ages 40 to 60 they don’t need the full million now—half a million would do. At a reasonable 6% real return, they’d need to work roughly two more years to build that extra amount.
Now you can see what ten years of smart choices can do. Don’t get reckless with your money, save and invest consistently, and a million dollars can happen. Add a couple more years and retiring early becomes realistic. Pretty good outcome.