If you don't mind me asking, what all parameters go into the math and what all do you account for? For context; I'm 23, just turning 24, just started working full-time at a well paying job, so have been recently exposed to a lot of things that I need to do in order to "adult" per se; taxes, insurance, etc. Would be really grateful to have some light shed on this great unknown.
This topic could literally fill a university library with prose, so this comment is just a tip of what to consider... I'm just going to try and give you pointers to search for on your own and things to consider which maybe a 23yo wouldn't normally consider. Oh, and don't feel bad if you can't afford or plan everything today, you're just at the start of a great and evolving journey.
At a super high level, retirement is just living off savings until you die or the pool of money dies. The goal is for the money to outlive your spending. Realistically, you'll probably invest that money (401k, etc) so it should be "growing" even as you draw it down. The goal most people aspire to is to have the same "income" in retirement as you did working, by having so much savings that the rate you withdraw is equal to your old salary. Thats hard to do, and when you retire you may need less money, but it's a useful goal. There are a ton of "retirement calculators" [0] that you can plug in your financial situation into and it'll output useful info... eg. if a 23yo makes 100k a year, and save 1K a month, you'll have 3.7M at age 67, but you need ~4M to "make" 100k a year for the rest of your life. I've found each calculator online makes different assumptions about stock market returns, inflation, etc, so play with a few or do some math manually. I think these calculators area great sanity check and first stop for any long-term financial plan. More concretely, you'll hear about the 4% rule - you'll be unlikely to run out of money if you only withdraw 4% a year from a pool of invested money. So if you want to retire early with an $X/yr salary, you'll need to save 25X that amount. If you're comfortable dying broke (you can't take it with you!) then you can retire with less money, but you should when it would theoretically run out.
This should give you a basic idea of your savings rate for retirement. It's just a start, but you're young so you can improve it with age as you understand your lifestyle and career, and your financials change. Oh and my advice is get as close to maxing out a 401k as possible. Its tax-advantaged, so you'll have more money than if you paid taxes on it, and since there is a yearly limit, in later years you'll wish you put more in earlier.
Beyond retirement, you'll have other expenses in life (new cars, houses, kids, weddings, etc). You should vaguely understand those costs even if you don't know which ones you'll incur and when. Weddings are expensive if you ever wish to marry (avg wedding in the US is $20k). Children are expensive too - even getting a child can be expensive if you're not able to do it "naturally" - IVF can be $25k+. At 23 you may not know if you'll want a kid or if you'll have medical trouble, but the scale of these costs would have blown away 23yo me. Then there's all the obvious childcare costs... The point is there are a lot of life milestones that a 23yo may not be thinking about but a 33yo or 43yo may wish the 23yo started planning for, so you'll want to consider saving for more than just retirement. Oh, and on top of this save for a bad day, whether thats getting laid off, or a car accident, or a sudden death, or whatever.
Thats basically it for a high-level planning - understand what your vague costs are across your life, and do the math to understand how long it'll take to save for them. You can do further optimizations for taxes, and consider the distribution of funds, or optimize the account costs structures or a million other things. First, learn the big-picture income/saving/spending trends in your life... premature optimization and all that. Personally, I think of everything in terms of the 4% rule - what can my net worth get me in terms of income via the 4% rule - eg. every 25k saved is 1k a year in forever-income.
> Weddings are expensive if you ever wish to marry (avg wedding in the US is $20k).
Weddings are usually much less expensive. Average cost is misleading; median is more representative and much lower. Average 2020 wedding cost was 19k - 27k, while median cost was 11k. This reflects a few couples spending drastically more than average, and most couples spending less [1].
Also, wedding costs can be adjusted a lot. Unlike childcare costs, which are fairly inelastic, weddings can be much more easily tailored to lower cost. Fewer guests, outside venue, etc. -- these factors can be adjusted without life changes.
My wedding cost 5k in 2014. We had 15 guests -- parents, grandparent, siblings, and significant others. Ceremony was in a nice park, reception was dinner and drinks in a reserved section of a high-end restaurant in a metropolitan downtown.
> Children are expensive too
To clarify for the young: children are _much_ more expensive than weddings. It's like an expensive wedding every year. In my opinion, minimizing this cost while still having children is a very worthwhile effort in life planning for a 23 year old.
Consider a common scenario: childcare in or near a major city that would allow a dual-income household to work 9 AM - 5 PM with commute times factored in. In my experience, that's $15k - $30k per year, _per child_ [2]. Nanny care substantially minimizes marginal per-child cost for > 1 child, but still costs 25k - 40k per year.
Children are worth it! But do plan. Living near parents that are willing and able to help with childcare can greatly reduce costs. Choosing employers or careers that offer flexible or non-9-5 hours can also be a big help.
> Consider a common scenario: childcare in or near a major city that would allow a dual-income household to work 9 AM - 5 PM with commute times factored in. In my experience, that's $15k - $30k per year, _per child_ [2]. Nanny care substantially minimizes marginal per-child cost for > 1 child, but still costs 25k - 40k per year.
This is true, but some times when I talk to young people about children they imagine these costs extending forever. Childcare is an expensive, albeit temporary, expense.
It helps to map out which expenses would be incurred in which years in a spreadsheet. For many, childcare might come down to effectively consuming most or all of one spouse’s after-tax income for a few years, but maintaining career continuity can be worth it.
As I get older, I’m also seeing more of my friends decide that one of them will become a stay at home parent - and ending up happier because of it. I never would have guessed I’d see some of these people voluntarily choose to give up their lucrative careers to stay home with the kids, but then I look and see that they’re happier and less stressed than I am
> Childcare is an expensive, albeit temporary, expense.
It's $15-40k per year for 5-6 years, often per child. Consider 2 children born 3 years apart with no non-nuclear family childcare help, which means 8-9 years of 9 AM - 5 PM childcare needed for at least 1 child.
With a nanny in or near a big city at $25-40k per year, that's $200-400k total. With a childcare center in same scenario, it's likely similar in total cost, albeit with (to your later point) spreadsheet-worthy complexity.
This is great advice, but one more thing to remember is that $100,000 today is not the same as $100,000 in 30 years. It’ll be closer to half that if inflation reverts to the mean. Most calculators will factor inflation in (such as the one linked), but definitely worth considering it when planning your savings target.
You can get drowned in a lot of information on this, but the fundamental part of the typical advice (not advice in the more official financial sense) is this:
If you are able to save nothing for retirement, you can never retire. You'll never build up any savings.
If you are able to put away literally everything you earn, you already can retire - your expenses are already covered.
In between those is not a linear scale (as it goes from 0 to infinity). As you setup a life where you are able to save more of your income you do two things:
1. You are able to save more and you get to your target figure faster
2. You need to save less because your lifestyle requires less money
Those combine very powerfully. This can be impacted heavily if you earn well when you're younger because as you invest compound interest makes a big difference over time. Investing in boring index funds (I mentally categorise this as a broad bet on capitalism) and continuing until you have about 25-35x your annual expenses (depends on your risk, there's loads on this) is the overall picture.
To save me redoing the maths, assuming 5% return after inflation and 25x your expenses, saving 10% of your income means working for 51 years, 25% of your income means working for 32 years, 50% means 17 years, and 75% just 7 years. [0]
Before I get the usual responses "but I like nice things" - the point is being deliberate about your spending and your goals. I am in a very fortunate position with my income (as many of us techies are on this site) and could spend a lot more. I would get significantly diminishing returns for spending more however, and it would come at a cost of working more and spending less time with my loved ones.
"ah but you can die any time why live a life of cold beans from the can" - the idea that I can die earlier strongly suggests to me I want to be in a position where I don't need my job earlier - to have more time retired rather than dying at my desk. Also the point is to build a life around things I actually value, not avoiding spending altogether.
"I like my job" - great! Unless you'd work for free, there is something else you'd rather do. Before you're FI you also gain huge security. FI is just "I could walk away from this job and be fine forever" but before then you hit "I would be fine for a month" then a year, then 10 years, 20, etc. Having a decade of runway makes shaky job markets significantly less scary.
Build the life you want to live, and save for it. Spend deliberately on things that you value. If that's cars, find the best way of spending your money to have the most fun with them (a cheaper daily driver and regular track days might be more fun and cheaper than a car a few models up).
I'd check out the subreddits and the sidebars for the standard advice in the personalfinance and financial independence.
The FI subreddit has good advice https://www.reddit.com/r/financialindependence/ again check the sidebar for the must reads and key things there. Lots of the advice, particularly for someone your age, should be very generic.
