This Blog Post was originally distributed by the Newsletter "Financial Idiot". You can find and subscribe to it here.
DISCLAIMER: I'm an idiot and this isn't financial advice! You can lose money when investing, and you should never invest money you don't own or you can't afford to lose. I'm not responsible for your decisions!
Let's start this issue with a minor Errata of the last one. Thanks, Matthias and Hans-Peter, for pointing it out. I wrote “Körperschaftssteuer” (KöSt) but meant the “Kapitalertragssteuer” (KESt). I used the correct abbreviation but the wrong long-from. :)
Also, the App is called "SpliNt Invest" with an "n" and not "Split Invest", but again, the Links were correct. Both errors are corrected on the Blog and Medium Version of the Newsletter.
Speaking of responses, thank you for reading! If you spot any errors or something I got wrong, don't hesitate to get in touch with me. You can quickly email me at email@example.com.
I'd love to share your investment or money story. I would also highly love some suggestions on topics if you got something you want to learn more about! I don't want this newsletter to be a one-way communication.
Now, let's get on with retirement. I know, I know. "Philipp, you're only 27 years old. Why would you consider retirement when you have at least another 40 years to work?" Let me answer that with another question: Why shouldn't I? Long-term planning sometimes stretches over decades.
First, we need to know how much money we want to get per month in retirement. I could use the budget value from a recent newsletter issue, but I want to use simple numbers again: 3000€. I also will ignore taxes again.
3000€ a month equals 36.000€ a year, a simple calculation for now. Interestingly, some past research analysed how much per cent of the stock market has increased over the years. (See: Article & Research). So we have 8% to 10% growth each year. Of course, that value gets lowered with the war in Ukraine and the ever-high inflation.
But again, for simplicity, we will assume that we can take 4% of our portfolio each year without ever running out of money (infinite money glitch; or a bug in the matrix ;)). So the 36k€ need to be 4% of our portfolio.
Now, if we divide 36k€ / 4 and multiply by 100, we get a portfolio value of 900.000€ (900k€). Almost one million. So if we manage to grow our portfolio to one Million € over 30/40 years (mind the compounding interest effect we discussed in an earlier issue of this newsletter), we can take out 3k€ a month in our retirement forever. With that, you leave your children a pretty sizeable financial buffer (again, leaving out inflation). And if your children do the same for their children, the number goes up exponentially (the more generations you go down).
With my current savings plan of 200€ a month, the one million mark is almost reachable (around 620k€) in 40 years (with 8% growth per year). If we take that 620k€ and use the same calculation as above (4%), we can take 24.800€ per year or 2.066€ a month on top of state-paid retirement money (if we still get one in 40 years). That can have a pretty significant impact on your monthly income.
Of course, everything above is speculation, but having a savings plan is better than having none.
We will look at cryptocurrencies again in the following "Financial Idiot" issue. Luckily the Ethereum "Merge" will take place a few days after the release, and so I'm excited that I can share my expectations right before.