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How to amass a large fortune for retirement

Start with a small one!


More than 20 years ago at a Berkshire Hathaway annual shareholders meeting, Vice Chairman Charlie Munger gave the following advice to a member of the audience: get that first $100,000 saved, it’s the hardest, but the most important.


Building the first $100,000 of savings


The six-figure benchmark is a psychological threshold of sorts. It may be the hardest to reach, but if you keep saving at the same rate it took to get to the first $100,000, it will take even less time to double that to $200,000 and even less time to treble it to $300,000. So that first hurdle is important to gain savings momentum.


I began saving in earnest only ten years after graduating from college, at which time I was earmarking a minimum of 15-20% of my gross income as savings. Within four years I had reached that coveted $100,000 nest egg. And by diligently saving at that rate for close to 25 years, my retirement nest egg was sufficient to be able to leave my day job before I was 60.



Savings plans that build wealth for retirement


What helped was having access to several employer-sponsored benefit plans, such as a 401(k) savings plan that had an employer-matching component, as well as a deferred income and stock plans. Most of these programs proved to be great wealth builders.


I also leveraged advice from a financial advisor in how to maximize the power of these wealth building benefit plans. I cannot understate the value of having good financial advice to facilitate financial readiness for retirement. Over the course of 25 years, the process was an iterative one of understanding what it would take to be financially self-sufficient over an extended period - which presumed we would need an income into our 90s.


How much do I need to retire?


In the early days of saving, it will be hard to know what ‘the number’ should be for a comfortable retirement. It will be different for everyone based on age at retirement, life expectancy and how much you expect to spend each year in retirement. In my initial planning, I approached the question of ‘how much’ based on a target amount represented by the nest egg. But I think it may actually be more valuable to assess the lifestyle you intend to lead in retirement, how that translates into an annual spend, which in theory should set you up for ‘the number’.


Our spending pattern over the three years prior to retirement became a benchmark of sorts for the lifestyle we wished to lead following my ‘relaunch’. Just because we may be living a simpler life, it does not necessarily follow that our spending would decrease meaningfully. We expected to have a lot more free time to pursue our hobbies, particularly travel, and earmarked the budget accordingly.


So, reaching that first $100,000 in savings should be an important priority in arriving to whatever ‘the number’ may be for you.


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