A viral TikTok video from actual property agent and content material creator Freddie Smith is making a daring promise: Observe his five-year plan beginning in your teenagers, and you possibly can retire with $4 to $5 million within the financial institution — all with out going to varsity.
The plan is constructed round one key precept: Save and make investments early, then let compound curiosity do the remainder. However does it work?
Smith outlines two phases to his plan:
First, between ages 16 and 18, the teenager will get a part-time job making round $1,200 a month, and the mother and father co-sign on a dependable used automotive (between $10,000 and $12,000). {The teenager} makes use of $500 a month to repay the automobile earlier than graduating from highschool, whereas protecting $600 to $700 a month to spend on no matter they need.
Second, between ages 18 and 21, they work full-time or tackle a number of jobs to earn round $35,000 a 12 months whereas persevering with to dwell at house rent-free, with mother and father overlaying fundamental residing bills. Of that revenue, $10,000 is for private use, however a considerable $25,000 is invested within the inventory market every year.
If all goes in keeping with plan, the younger grownup could have $75,000 in investments by the point they attain age 21. And, in keeping with Smith, in the event that they by no means contribute one other greenback to retirement, that $75,000 might develop to $4 to $5 million by their late 60s, because of the facility of compound curiosity.
Smith admits this plan will not work for everybody, however it’s nonetheless an fascinating idea. However does the maths work?
When you make investments $75,000 and let it sit for 45 years (to age 66), at a ten% annual return, you may have $5.5 million. So, sure, that half works.
Nonetheless, in the event you dig deeper, the numbers begin to break down. Let’s discuss that $1,200 part-time job. If the teenager earns $10 an hour (which is above the minimal wage in lots of states), you’d have to work 120 hours a month, or roughly 26 to 30 hours every week, to earn $1,200 month-to-month. That is quite a lot of hours for a highschool scholar to work.
What about that $500 automotive cost? For a $12,000 automotive financed for 60 months (5 years) at a ten% rate of interest (which is on the low aspect, however not unhealthy if the mother and father have good credit score), you’ll be able to count on to pay round $315 a month. Add in insurance coverage prices, and $500 could also be a detailed estimate.
Now, let’s focus on the common wage after highschool of $35,000. Based on the Bureau of Labor Statistics, the common U.S. employee between the ages of 16 and 24 (the youngest age vary BLS considers) earns a median of $721 per week, or $37,392 per 12 months — in order that charge does work out as Smith suggests.
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The mathematics largely checks out — on paper. When you make investments $75,000 at a ten% return and let it sit for 45 years, sure, you possibly can see tens of millions. However that assumes:
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Discovering a high-paying job in highschool or working quite a lot of hours, which is probably not sustainable.
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Constant funding returns over practically 50 years, which requires a really balanced portfolio — index funds might assist right here.
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No withdrawals from the account, which requires quite a lot of self-discipline.
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Residing at house rent-free till 21, which is probably not life like or wholesome for some.
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Minimal to no emergencies — Smith’s plan would not account for medical insurance, automotive repairs, taxes, or another bills.
The plan additionally assumes a stage taking part in discipline, however not all teenagers have equal entry to jobs or parental help. Teen employment within the U.S. has declined from pre-2020 ranges. Based on the BLS, simply over half of teenagers (16 to 24) have been working in July 2024.
And even when jobs can be found, they’re usually low-wage, part-time, or seasonal, making that $35,000 12 months goal formidable.
There’s additionally a socioeconomic divide. Teenagers from lower-income households usually tend to have to contribute to family bills or look after youthful siblings, making the concept of working full-time and saving $25,000 per 12 months a stretch.
Smith’s recommendation presents a compelling thought experiment: What if we handled saving for retirement with the identical urgency as saving for faculty? The idea of front-loading investments for retirement is a robust one. Nonetheless, it additionally relies on a uncommon mixture of parental help, private self-discipline, and monetary stability that many households lack.
Households contemplating this method must be life like and weigh the prices of skipping faculty, consider real-world bills like taxes and insurance coverage, and do not forget that investing at all times includes danger.
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This text gives info solely and shouldn’t be construed as recommendation. It’s offered with out guarantee of any sort.
