Becoming Debt Free May Not Be Easy But Here Is How It Is Done Saving 20% For 25 Years

Save 20% A Year Or Perish

How much do you have to save to be able to retire debt free?  This is not a simple question.  Economists for years have justified that families have the number 10%.  But Wall Street has stripped middle class workers of their pensions and other benefits.

The Wrong Number

NOW that defined-benefit, or final-salary, pensions are going the way of the dodo, many private-sector workers are accumulating a pensions pot to see them through their declining years. How big should it be? Usually advice has focused on the best “withdrawal rate”, the proportion of the pension pot that can be taken as annual income while minimising the risk that the retiree outlives his or her savings. That withdrawal rate has generally been put at 4%. So any worker who wants to have a retirement income of $20,000 needs to generate a pot of $500,000.

Read more at The Economist.

I have been teaching my students for nearly ten years that they have to save 20% of every after tax dollar they earn.  Now this is even more important than ever.  If you simply put this money in a well thought out core passive portfolio strategy such as that of Alex Green’s Gone Fishing Portfolio you have an excellent plan to become not just debt free but retired financially free in just 25 years.

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