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Building A $1.6 million Tax-Free Fortune For Just $15 A Day

Updated: Nov 20, 2023

Imagine this: As a young professional, you have the opportunity to retire with over $1.6 million in tax-free savings. It's not a fantasy; it's achievable by setting aside just $15 each day and wisely investing that money at the start of each year. Let me guide you through the process, inspired by principles from "The Bogleheads Guide To Investing," a valuable read.


Here's the deal: You must commit to saving $15 daily, consistently, from the age of 25 until you reach 65. If you can manage this, you'll be able to contribute and invest $5,475 annually into your Roth IRA at the beginning of each year. By doing so and aiming for a realistic 8% average annual return, you can build a substantial tax-free nest egg for your retirement.

Now, keep in mind that the financial market isn't a straight path, but that's fine. The 8% return is an average over time. If the idea of saving $15 daily seems daunting, take it step by step. Begin by tracking your spending for a month or two to uncover where your money flows. You may be surprised at how unnoticed dollars add up. With discipline, you can find a way to save and invest $15 a day, or $105 weekly, in a Roth IRA that grows tax-deferred and provides tax-free income during retirement.


If you start at age 25 and maintain an average annual return of 8%, your portfolio will blossom to a remarkable $1,650,742.95 by age 65—completely tax-free!


Should you delay until age 35 to begin, you can still amass a substantial nest egg, though significantly less. With an 8% annual return, your portfolio would be worth $724,937 at age 65.


Starting at age 29 falls somewhere in between, resulting in a portfolio worth $1,193,761 at age 65.


Even if you start at age 30, your portfolio would surpass $1 million, totaling $1,099,859 at age 65—tax-free.


Clearly, investing and harnessing the power of compounding interest require time to flourish. Begin saving early and invest consistently. These straightforward steps pave the way for lasting financial success.


In summary: initiate your savings journey early, set aside just $15 daily, and cultivate a tax-free fortune. Combine this with a healthy 401(k) contribution, social security income, and a mortgage-free home, and you could enjoy a comfortable retirement.

It's genuinely that simple—save, invest, and let your money work for you!

Here are the steps to build your tax-free small fortune:

  1. Open a fee-free Roth IRA account with a brokerage firm of your choice.

  2. Save $15 daily.

  3. Deposit $5,475 into your Roth IRA at the start of each year.

  4. Invest these funds in an index fund or a mix of funds with a realistic 8% annual return expectation.

  5. Allow your savings, time, and compounding interest to grow until you reach age 65.

  6. At age 65, revel in your tax-free, substantial nest egg.


*Note: Calculations assume an initial $5,475 investment at the beginning of year 1, using the compound interest calculator provided by MoneyChimp (http://www.moneychimp.com/calculator/compound_interest_calculator.htm).

**Historically, the S&P 500 has averaged an annual return of approximately 10-11% since its inception in 1926 through 2018 (source: Investopedia - https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp).

***The average annual return (AAR) is a percentage used to report historical returns.

****Keep in mind that Roth IRAs have income limitations and phaseouts. Visit IRS.gov for current eligibility rules and contribution limits.

*****However, it's important to note that investment returns are not guaranteed, and the assumed 8% average annual return is a simplified estimate. The actual return on investments can vary significantly from year to year and may be affected by factors like market volatility, investment choices, and economic conditions.

Additionally, the calculations assume that the contributions are made at the beginning of each year and use a compound interest calculator as referenced. The specific calculations may vary slightly based on the compounding frequency and the exact timing of contributions.

For precise financial planning and retirement savings, it's advisable to consult with a financial advisor who can provide personalized guidance and consider your individual financial situation, risk tolerance, and investment goals.


About the author: Daniel Caycedo is an Investment & Tax Strategist and Financial Advisor for CayDen Wealth Management, a Colorado registered investment advisory firm with offices located in Broomfield, Colorado and Charlotte, North Carolina. Daniel works out of CayDen Wealth Management's Charlotte office, providing virtual, fiduciary, comprehensive wealth management and tax services for high performing professionals and their families. Services include proactive Financial Planning, Investment Management, & Tax Services.

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