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How Moderate Leverage Can Cut Decades Off Your Retirement Timeline

The average savings rate in the US has plunged to only 2.6%. That is extremely low. With a 100k/year income you’d only be saving $2600 a year. You might think that saving for retirement is impossible with this low of a savings rate. But after going over the math, it might be doable.

So a while ago I published this post where I outlined a dollar cost averaging strategy for retirement.

So using that equation how long would it take to retire on $2600 a year? Well, first how much money do you intend to spend in retirement? If you want to retire in a city like Toronto or Vancouver, you’ll need 60k a year or 5k a month. Plugging these numbers into the above post and you’ll be working for 65 years.

This is actually much shorter than I expected. The reason is that the money is compounding in the stock market at an expected real rate of 6% a year. This is the power of exponential growth. If it did not compound it would take over 690 years. But with compounding it’s much shorter.

Although 65 years is still way too long. Surely we can do better. First of all, don’t retire in an expensive city, retire as an expat. Somewhere like Mexico, Thailand, or Portugal. That can cut down your monthly cost by more than half. So instead of needing 5k a month, you only need 2.5k a…