Dear 20-Year Old, Invest Now and Retire Early

October 12, 2017

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I recently sent a letter (yes, a real letter) to my 20-year old nephew encouraging him to start saving for his retirement today. With time and compound interest on his side, his options are endless. In order for him to reach financial independence, he’ll need to invest and adopt some crucial money-smart habits early on in his life.

Cross your fingers for me that the message resonates with him!

Hey buddy. I hope your summer was a blast!

You’re back for your junior year this fall. That’s such an exciting time for you. I absolutely loved my time at college. Enjoy every minute of it.

I know the last thing you're thinking about right now is investing for retirement, but humor your Uncle and hear me out.  

You’ve probably heard of the typical person retiring when they’re 60 or 70, right? Well, I want to share with you how you could retire at 40 years old.

Since you haven’t entered the full-time working world quite yet, the idea of early retirement might not sound appealing to you. If it doesn’t, you can put this letter away and maybe open it again if you have a rough year at work in the future.

If the idea of only working 20 years of your life instead of 40 sounds intriguing, read on.

7 Steps to Early Retirement for a 20-Year Old

The steps to early retirement are quite simple, but not everyone will do it. You know why? Because it takes patience and willpower. As you graduate and enter the work world, you may find that a lot of your colleagues lack these two traits. Hell, I lack these traits most days, but I’m at least aware that they’re crucial when you want to do something incredible in your life.

Whether it’s running a marathon, negotiating with your 3-year old to eat their breakfast or reaching financial independence … these major feats all take time and a whole lot of determination.

So at 20 years old, you have something that a lot of people don’t have:  TIME! Let’s take advantage of it and set yourself up for early retirement.

1. Invest Now for the Long Term

I put this first because I want to express the urgency of investing. If you have an earned income this year, you can take advantage of a Roth IRA. This type of investment vehicle currently allows you to contribute up to $5,500 per year. That may seem like a lot of money for you now, but you can steadily increase your contributions year-over-year until you’re able to completely max it out.

Roth IRA contributions are considered “after-tax money” which means that taxes have already been taken out of your paycheck. A major benefit of the Roth IRA is that your earnings will grow tax-free. You can’t withdraw the earnings until you’re 59 ½ without a penalty but you can withdraw your contributions at any time. There are ways to get around this, but don’t worry about that for now … just let it grow and grow and grow.

Let’s say you put $3,000 in a Roth IRA making 8% interest compounded annually and you didn’t contribute anything for the next 40 years. When you turn 60, you’d have $65,173.56.

What if you stayed consistent with that $3,000 contribution each year for the next 40 years? That would give you $904,516.69.

And how about the maximum contribution of $5,500 each year starting from age 20 to 60? $1,658,280.59!! Talk about a cushy retirement.

What about if you waited until you were 40 to start investing? Your ability to take advantage of compound interest gets slashed significantly!

Roth IRA Savings Chart
Compound interest is king!

Look at the difference between starting at age 20 versus starting at the age 40. In the final example, you would be missing out on $1,250,819.26 in interest not including your contributions. My point is the earlier you start, the more compound interest works in your favor.

Where do you invest your money you might ask? I’d recommend you keep it simple. Get hooked up with Vanguard and buy VTI to start. This will allow you to pretty much own a small slice of every major company in the US. Call your Uncle and I’ll help you out.

2. Avoid Consumer Debt

You’re gonna run into a lot of temptation to take on debt in many forms and fashions over the next 20 years of your life. Do your best to steer clear of it. Live by the mantra of “If I don’t have the money, then I can’t buy it.”

Short-term loans, payday loans and credit cards can all be slippery slopes in college and in the years following. These are fast and easy ways to get cash, but they have crippling interest rates that will leave you paying on them for years. Don’t have the money? Don’t buy it. This goes for cars, clothes, boats, fancy dinners, vacations, etc.

Right now, 78% of Americans are living paycheck to paycheck. The continual reliance on consumer debt is a big reason why people can’t seem to get ahead.

Don’t get me wrong. There’s nothing wrong with having a credit card as long as you use it responsibly. You don’t want to abuse it. Only buy things with your credit card if you have the money in your bank account to pay for it. 

3. Find a Career with Upward Mobility

Okay, you’re going to be at least working for the next 20 years of your life. Let’s find something that excites you, engages your brain and provides you with a solid income. In addition, you want to make sure you have the ability to increase your income steadily over your years working.

In your early 20’s, you probably won’t make a ton of cash right away. No worries. Always show your interest in learning more, give your best effort and continually find ways to demonstrate your value to your upper management. By doing these actions, your salary, benefits, and position at the company will most definitely increase.

This solid and consistent income you’ll be earning will help fuel your early retirement machine.

4. Save 50% of Your Income

If you can save 50% of your income when you get your first job at 22, you’ll be able to retire in 17 years at age 39. Now, since you’re 20, 17 years may still sound like a long time. I can assure you since I’ve already been working for 13 years that it sure beats 40 years of working!

Now, your question might be … “What do I do with this 50% each year?” The absolute first thing you need is 3 months of your monthly expenses in a savings account for an emergency fund. This may take some time to build up, but it’ll keep you from turning to debt to solve your financial problems (remember step 2?).

After that 3 months of expenses is saved up, now it’s time to take advantage of the magical, mystical, all-powerful COMPOUND INTEREST!

5. Max Out Tax-Advantaged Investments

With your new awesome job, your employer will more than likely have a 401k available for you. This is a pre-tax investment option that allows you to save for retirement. Now, you won’t be able to draw from your 401k until you’re 59 ½ without a penalty, but the benefits of not paying any tax now are completely worth it. And like the Roth IRA, there are sneaky yet legal ways to get around the early withdrawal penalty.

Now, max this baby out! Contribute the maximum of $18,500 (this may go up in the next couple of years) per year and let it grow. While you’re at it, max out the Roth IRA described in step 1.

Your employer may not have Vanguard options like we discussed earlier. If they don’t, try to find something called an “Index Fund”. These are simple, low-cost solutions that track a market index. A “Total Stock Market Index Fund” or an “S&P 500 Index Fund” are great options to consider.

You’ll eventually want to incorporate a bond index fund to create a balance of stocks and bonds in your portfolio, but in the beginning, just focus on starting. The longer you wait, the less compound interest will be working in your favor.

6. Build Passive Income Early

After you’ve maxed out the tax-advantaged options, here are some thoughts on creating money in your sleep in your 20’s and 30’s:

House Hacking  

Buy a house when you have at least 20% to put down, and rent out rooms to your friends. With the income from your roommates and the right math, you’ll be living in your house for free. This strategy could work with a single family home or a multi-family home. I did it for the majority of my 20’s. I made lots of friends and money.

Buy-and-Hold Rental Real Estate

If you dig making money through your primary home, consider adding rental properties to your portfolio as well. 90% of the world’s millionaires have used real estate to amass their wealth, but they definitely educated themselves first. If you’re considering this route, check out BiggerPockets or Paula Pant. They have been excellent “real estate 101” resources for me.

Taxable Brokerage Account  

Once you’ve exhausted your tax-advantaged investment options, you can look into a taxable brokerage account to continue investing in the stock market. Stay away from individual stocks. They’re too risky and pretty much like going to the casino in my opinion.

Small Business  

If you have extra time and you want to follow your passion, try flexing your entrepreneurial muscle a bit. Think about what drives you and then figure out how you can sell it as a product or a service. Start small. You don’t want to stress yourself or your wallet too much.

Starting a blog can be an easy way to hold yourself accountable to your goals and make you some extra cash too.  

7. Realize What Early Retirement Actually Means

I’m actually not a fan of the term “early retirement”. That sounds odd given that I’ve just written this whole letter about the topic, but hear me out.

I prefer the term “financial independence” instead. This set of words infers warm fuzzy feelings of freedom and the ability to choose the course for your life. Once you’ve amassed enough wealth to cover your annual expenses consistently without working, you’re financially independent. You’re free to do what you want when you want and with whom you want.

For most people, early retirement doesn’t mean sitting back on a beach and doing nothing. Many people are still working in some way (part-time, flex between leisure and work) in retirement. That number really surprised me the first time I heard it, but it really makes sense. After a few months of lying on the beach, we’d probably get bored. We wouldn’t be challenged, we wouldn’t be growing and we wouldn’t be pursuing our passion.

That 68% of folks are more than likely doing “work” that gives them purpose. They are working when and where they want to. I believe that’s what financial independence is all about … Designing your best life.

Crazy Uncle Out

This real world stuff can seem difficult and confusing, but it’s really not. Invest early, spend less than you earn and pursue your passions.

I wish someone would have given me this type of advice when I was 20. I hope you find it helpful in your life journey buddy.

I’ve included some gift cards to the finest late night eateries available (Chipotle, Domino's) … because no mail to a college guy is complete without providing access to delicious food.

The burrito you’ll buy tomorrow will taste good, but I’m willing to bet your future financial independence will taste a lot better.

I love you and wish you the happiest life possible.

Best wishes,

Uncle Andy

Are you pursuing Financial Independence or Early Retirement?

What would you add to this letter?


Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


  • As a 19 year old reading this, I feel blessed. Thank you very much for this detailed description.

    • I’m so happy to hear that Jed! Please let me know if you have any questions!

  • Do you have any suggestions for a 20 year old who wants to be able to retire early but can’t stand the grind of a 9 to 5.

    • Great question!

      At 20 years old, if you’re in college … I suggest finishing college and using your degree to save and invest for at least 5-10 years. That way you’re using your degree, learning some life skills and getting your investments cranking early. Then find something that you absolutely love doing and find out how to get paid well for it.

      At 20 years old, if you’re not in college … Find something that you love doing and then find the people who are making good money doing it. Take one of them out for coffee and ask them how they did it. Ask really good questions. Then ask more questions.

      Read their books or blogs … more often than not, the answers to your questions are out there. You just have to keep asking better questions.

      Retirement isn’t about sitting around and doing nothing though. It’s about having the time to pursue your passions.

      If you don’t know what your passion is yet, that’s okay. Try a lot of different things and discover it. That’s why being young is so much fun. You have time to discover, fail, succeed, fall down, get back up again and win … and you’re still in your 20’s.

      • How often are people in positions of wealth and/or fame willing to sit down with someone outside of their circle to discuss strategies for success. It would seem to me that most are to busy to do that or unwilling to help someone who may be competition but, let me know if I’m wrong.

        • It really depends on what you’re looking for.

          I’ve found that podcasts, blogs, and social media are great avenues for connecting with wealthy and successful people. A LOT of them are willing to share their secrets to success because they have good hearts and they want others to succeed too.

          I’ve interviewed over 100 self-made millionaires, personal finance experts and financially independent rockstars just by reaching out to them and asking their opinions and advice. I’m just a 30-something dude from Michigan.

          Sure you’ll get a lot of “no’s”, but you’ll get some “yes’s” too.

  • Just turned 20 and looking to make the most of the money I’ve earned this year — planning on putting the 5,500 in a Roth IRA, but can I put the rest of the money I want to save in a 401(k) ? Do I need a permanent job to open a 401(k)?

    • Wow! You’re killing it!

      If you max the Roth IRA, you can consider opening an after tax brokerage account (Vanguard, Fidelity, Schwab). Those investments will compound and you will be a very wealthy woman.

      What would also be an awesome idea (if I were 20 again) is saving up to buy your first property. You can do some house hacking … buy a 3-plex or a house, rent out the rooms and have your renters cover your mortgage and pay it down.

      Many many many millionaires are made from real estate.

      Good luck!

    • I felt the same way when I was writing it to my nephew. If I only had started this when I was his age! Hey, late 20’s is much better than late 50’s!

  • This is great! I opened a life insurance policy at 22, then a Roth IRA at 23. I contribute to my life insurance policy every month and honestly would rather be investing into my Roth. I think I’m going to reach out to my accountant to get that figured out! I love reading about the growth potential of starting a policy at 20 vs 40. So exciting!!

    • So glad to hear you started early! You are going to kill it, Leila. I’d agree that taking a second look at your life insurance makes a lot of sense. Quotacy is a good partner to consider. Best of luck!

  • Every 20 something year old should read this! I particularly agree with the credit card debt thing. Often young people would say ” let’s put this on a credit card”! As if it was free money or something! It’s a vicious circle if you have no self control and can’t remember to repay the balance in full every month plus it gives you the feeling that you can pay for everything later, when you get paid and we all know life doesnt work this way!

    • Thank you so much for the compliment. You are absolutely right … credit cards can destroy a 20-something’s financial standing early in their life. Learning to tame the credit card beast is crucial to winning with money. The earlier we learn the better!

      • I grew up in france and we literally did not have credit cards when I lived there. According to my cousin it’s now becoming a thing so I wonder how it will affect the economy there! I’m grateful that I also went to university and paid out of pocket(tuition was like 300€ per year) and didnt have to get tens of thousands of Euros of loans to barely survive those years! I’m also lucky that credit cards aren’t really a thing in Europe, they dont offer points rewards like in the US so I’m less tempted!

        • Wow! Those points can be a blessing or a curse depending on your behavior with credit cards. We need to control them and not the other way around.

          • The problem is most people rely solely on their credit card so when there s an emergency they use it and go over what they can repay with their salary and they end up never being able to pay the balance cause they keep using it, it’s a vicious circle imo!

  • This is all really great advice, though I feel some of it may be unattainable. I don’t know how anyone would be able to save 50% of their income right after college. Maybe he’s super lucky and won’t have any student loans and will get an amazing paying job, but for most people I know, that isn’t the case. Most people I know with great college educations in their 20s are scraping by because the job market is so awful.

    My first job out of college was for $10/hour…there’s no way I could live on 50% of that. And my next job only paid $15/hour. I also live in Los Angeles where the cost of living is very high and the employers of entry level jobs are very cheap, so maybe that’s reason, but still. I got a Roth IRA when I graduated college, but have no way been able to max it out. I try to contribute $500/year, which is honestly pushing it, but I force myself to contribute because of all the great reasons you’ve mentioned.

    My current employer only gave me health benefits and a 401K after working for them for TWO years (and this employer is one of the biggest corporations in the country). It was totally messed up and I should have left, but they kept promising if I stayed a bit longer, I would get all the amazing benefits of this wonderful corporation. It was also a good job that looks great on my resume. Well, I stayed and now have a 401K, but they’ll only match after another year with them and I’ll only get to keep what they matched if I stay another three years.

    I feel like I’m starting to sound bitter, so I should probably stop typing. I didn’t mean to take anything out on you…I know you were obviously doing a very nice thing in giving your nephew (and all other 20-year-olds reading this) advice that most young people don’t know. And, again, I think a lot of this advice is AMAZING. I wish I started a lot of these things earlier. But, I just had to add my two cents because I think there may be others like me who wish they could have done these things, but it just wasn’t possible. But good luck to your nephew and any other 20-year-olds reading this! I hope the job market is better for you when you graduate and you don’t settle for less than you’re worth!

    • I completely understand where you are coming from. Not everyone’s situation will fit this scenario that I’ve laid out. That being said, if you’re in your 20’s and you’re at least aware of all of this information, you are better off than most folks in the US. A recent survey indicates that 60% of Americans have less than $1,000 in their savings account. One big emergency and they would be wiped out, in credit card debt and barely scrapping by. Based on your eagerness to get in your company’s 401k, I’m willing to bet that you have well over $1,000 saved up. That is a lot more than most of the country.

      As far as the savings rate of 50% is concerned, yes, it requires a decent salary out of college. I would agree that $10/hr would make that quite difficult. If you’re student loan free and making around $50k (average starting salary in 2016 according to Time), a savings rate of 50% is very attainable.

      I wish you the best of luck with your career and finding a way to increase your salary and benefits over time. Thank you for your thoughtful feedback. I love talking about this topic.

  • Bookmarked this post. Will use it in a few years for my oldest – thank you!

    • I’m so glad you enjoyed it! I hope your oldest becomes a huge financial success.

    • Thanks Matt! It’s the “applying them” part, right?! I wish I would have started seriously investing much earlier too.

    • Excellent! I’m so glad to hear that she appreciated it! If you’re never taught, you’ll never know, right?

  • Great idea!!! I will do something like this… but my niece is only 4… so I’ll wait a few years.

  • My mom is finding out this lesson in her 40s. She didn’t start saving early enough and it’s a really stark reality.

    I started investing around 20 with my first big girl 401k plan and expanded to a Roth IRA from there. I don’t often write about investing anymore because I read two books, Common Sense Investing and A Random Walk Down Wall Street, that made me feel kind of gloomy about it.

    The crux is that we can’t always expect the stock market to do what it’s done in the past. I see the U.S. economy being fully developed, getting most of its growth from outsourcing jobs, jobs that don’t produce anything physical, and outright money creation. I wonder to myself if stock market investing will be much of a thing in the future.

    Just as people in the 80s looked at their bank deposits earning 10% and thought they could just do that forever. Despite that, frugal people like us will always find a way to get a return on our money. It just may not be in the way we think. Great post Andy, I really hope more young people get this thing.

    • Thank you for the thoughtful reply Elsie! I agree that we will ALL need to become nimble. These consistent returns may not continue. Diversifying our income streams is just as important as a diversified stock portfolio. I wish your Mom the best of luck.

  • Oh man, if every 20 year old read this… think of all the early retirees! I certainly wish I had a few of these lessons earlier in my 20s!

    ~Mrs. Adventure Rich

    • Me too!!! Especially the “investing early” part. I was too concerned with my weekend bar money than my retirement.


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