Start Now with Greg M. Ostroff

Start Now

Start Now · Part 15. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

The floor was the plan. The rest is upside.

The case studies use the 10% average, but the plan was built to hold up on far less. At the 8% floor, the most unlucky investing lifetime on record, a maxed-out Roth still turns roughly $322,000 of contributions into just under a million dollars of tax-free spending power in today’s money. Even on the worst case the market has produced on record, the plan works.

That foundation has a consequence almost no financial plan can claim: nearly all of the surprises run in your favor. Because it already succeeds at the bottom of the range, almost any outcome you actually get (the 10 percent average, or anything close to it) can only make things better. This chapter is about how much better, and why that asymmetry, not any single forecast, is the real reason to start.

What could push returns higher

The last chapter named the forces that could drag returns down; several could just as plausibly push them up, and some are already underway. AI could raise productivity the way electricity and the computer once did, and shareholders own that growth. The structural advantages from Chapter 8 and Can America Keep Winning? (deep capital markets, the rule of law, the immigrant-founder pipeline) are all reasons the floor may prove too cautious. And as billions more consumers reach the middle class, much of what they spend flows back to the multinationals you already own.

None of these is a promise. Each is a plausible reason the unlucky-investor case we planned around is, in fact, unlikely.

9.4

The upside you control

Here is the part most books bury. The market’s return is not in your control, but the three levers that matter most are, and all three have uncapped upside.

* Starting earlier. Every year you move your start date forward adds a year on the far end, where the doublings are largest. Beginning at 25 instead of 30 doesn’t add a sixth more money. At the floor it adds far more, because that early dollar earns one extra doubling.

* Contributing more as you can. We modeled flat contributions. In the real world the IRS limit drifts upward, raises happen, and the same disciplined habit applied to a slightly larger number compounds into a materially larger result.

* Working and contributing a little longer. Retirement is not a fixed date, and we are living longer, healthier lives. Moving the finish line from 70 to 75 (five more years of contributions, five more years of compounding before you touch a dollar) lifts the floor outcome from just under a million in today’s money to about $1.3 million, a gain of more than a third in the worst case on record. At the typical and average rates the jump is larger still. Those may be five years you would happily work anyway.

Retire at 75 instead of 70, today’s dollars

8% floor: $975K → $1.32M · 10% average: $1.69M → $2.48M

Starting earlier, contributing more as you can, working and contributing a little longer. These are not market bets. They are personal choices. And unlike the forecasts, their upside sits entirely in your hands.

9.5

Don’t plan on the upside

The risk chapter ended with a rule: don’t let the unactionable catastrophes drive your decisions. The upside has a mirror-image rule, and it matters just as much. Don’t plan on it. It is tempting to look at the better outcomes and think that if the market will probably beat 8 percent, I can afford to put in less. Do the opposite. Build the entire plan on the floor. Fund it as though 8 percent is all you will ever get. And then let every better outcome be exactly what it should be: a surprise you never needed.

That is the shape of the bet this book asks you to make. You have seen the numbers: even in the worst case ever recorded, you retire with just under a million of today’s dollars, and every better outcome, from the typical lifetime to the long-run average, simply hands you more. Past results do not guarantee future ones, but the historical margin of safety is wide, and the only thing the bet asks of you is that you start now.

✦

Coming next: Putting It Into Practice, Part one: Open the Account, Buy the Fund

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 14. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

8.2

The Truly Big Risks: How to Think About Them

Beyond markets sit the genuine catastrophes: a great-power war, a pandemic far worse than the last, an environmental shock, some dislocation no one has named yet. The useful move here is to sort every risk in this chapter into two piles.

Pile one lowers your return. A stretched starting valuation, mean reversion, the end of American exceptionalism, a return of serious inflation. These are the risks that turn 10 percent into 8, or, in a future worse than any on record, 8 into 6. They are real, and the response to all of them is the same: expect less than the rosy case, stay diversified, and keep contributing.

Pile two breaks the world. A civilization-ending war is real too, but it is not a portfolio problem, because if it happens, a diversified index fund is the least of anyone’s concerns, and no savings strategy protects against it. There is no asset allocation for the end of the world. Naming that plainly is what lets you stop worrying about it: it’s not actionable, so it should not drive your decisions.

And it is worth remembering what the historical record already contains. The 1928–2025 data that produced these returns includes the Great Depression (an 86 percent collapse), a world war, the stagflation of the 1970s, the dot-com bust, the 2008 financial crisis (a 57 percent collapse), and a global pandemic. All of that is already inside the numbers, and the worst 30-year window still cleared roughly 8 percent. The plan was not built assuming calm. It was built on top of a century of disasters.

8.3

How much of the world to own

Most of the risks above are survived with discipline, and the rest cannot be acted on by anyone. But several of the largest ones share a feature: they are specifically American. The end of U.S. exceptionalism, a Japan-style lost decade, a stretched U.S. valuation, the federal debt.

Against American-specific risk there is exactly one hedge: owning more of the world beyond the United States.

In practice, the two choices are closer than they look. A single global index fund is still about two-thirds American, because that is the United States’ share of the world’s stock market. And even the S&P 500 alone is a global portfolio through the back door, since a quarter to two-fifths of its revenue is earned abroad. The historical record across thirty-five countries says that spreading globally usually beats staying home. The one glaring exception is the United States: an American who owned only U.S. stocks did better than one who owned the world, because for a century the U.S. market was the best-performing major market anywhere. Bogle and Buffett were looking at that record.

There is no wrong answer here, only a tradeoff to make with open eyes: a U.S. tilt bets on the continuation of the most remarkable run in financial history; a global fund bets that no single country, however exceptional, stays on top forever. Knowing which bet you are making, and why, is the entire point of this chapter.

Every terrible starting point, measured the same way

It is fair to ask whether the numbers in this book depend on a lucky starting date. So here are the worst entry points in the history of the two largest developed markets, each measured two ways: buying once at the top and holding, and continuing to invest every year.

Nominal unless noted. What If You Start at the Worst Possible Moment? shows each of these in full. The pattern is the point: the worst moments on record still cleared, or nearly cleared, the 8 percent floor, and in every single case the investor who kept contributing did far better than the one who bought once.

Notice what is doing the work. It is not the starting date, which was the worst available in each case. It is whether the investor kept going.

The plan needs three things from you

Where this leaves you.

A chapter spent cataloguing everything that could go wrong, you might expect to end in caution. It ends in the opposite, because of one fact: the plan does not depend on the long-run average of about 10 percent that this book shows alongside. Even the worst investing lifetime the market has delivered on record still funds a secure retirement.

It doesn’t need America to stay number one. It does not need the bull market to continue, or the next decade to be kind, or your timing to be good. It needs three things, all of which are up to you:

* That you start.

* That you keep contributing even when it’s frightening.

* That you own a broad enough basket of companies, ones whose revenues already span the world economy, that no single bet can sink you.

Most of the risks in these pages are either survivable by steady saving or unactionable by anyone alive, and the plan is built on the worst 30-year outcome those survivable risks have ever produced. So the conclusion is exactly the same as the rest of the book, only now you’ve looked the dangers in the eye and chosen it anyway: start now, keep going, own broadly, and let time do the work.

✦

Coming next: 9 · What Could Go Right?

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now · Part 12. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

Every dollar figure in this book rests on one assumption: that a broad basket of American stocks will continue to compound somewhere between 8 and 13.6 percent a year over a future 30-year timeframe, as it has over the last century. An earlier chapter already stress-tested the plan against a bad market by turning the return dial all the way down to the floor, and the plan still worked. This chapter does something harder. It asks whether the historical record can be trusted at all, and what, in the real world, could break it.

The short answer is that the plan is more robust than any single risk that threatens it, but only because it is built on the worst the market has ever done, not because the risks are small. They are not. It is worth looking straight at them.

8.1

The four serious objections

Four objections are serious enough to deserve a full hearing. Here they are in brief, with the answer to each.

The average return may be flattering itself. Across the 69 rolling 30-year windows since 1928, the worst compounded at about 8 percent and the mean of the windows was 11 percent. But those windows overlap heavily, the booming 1950s, 80s and 90s each get counted inside dozens of them, so a few great stretches do most of the lifting. Strip the overlap away and the data holds only about three separate investing lifetimes. That is exactly why this book does not lean on that 11 percent: it is an average of heavily overlapping windows, not what any one investor earns over a single lifetime. So the case studies are illustrated at 10 percent, the market’s full-period compound return, and every conclusion is built on the 8 percent floor beneath even that.

A major market could disappoint for a generation. Japan’s Nikkei peaked in 1989 and did not regain that level for 34 years, which fed the popular story of Japan’s “lost decades.” If it happened there, it can happen here. But the “lost decades” are a price-only story. The Japanese investor who kept buying through the wreckage (dividends reinvested, new money every year) still earned roughly 6 percent a year. And 6 percent was no consolation prize. It was several times what the safe alternatives in Japan paid: bank and postal savings drifted to essentially zero, and government bonds sank from 7 percent toward nothing. So the lost decades were real. The loss just fell on the people who thought they were playing it safe. This book’s exact method, tested against the worst developed-market crash in modern history, still worked.

America may stop winning. These returns rest on American exceptionalism: the deepest capital markets in the world, the rule of law, the dollar as the world’s reserve currency, and an innovation engine of universities feeding venture capital that no rival has reproduced. That edge is structural rather than lucky, though it still has to be earned again in every generation.

The national debt. It is real, and it is large: roughly $300,000 for every household in the country, and climbing. It has been paid off only once, in 1835, and was back within two years. No one serious expects it to be repaid now. But the failure it produces is not the one most people picture. A government that borrows in a currency it issues does not have to default, and in the century since the Federal Reserve was created in 1913, it has not. What it has done instead, again and again, is let inflation shrink the debt: the government kept borrowing in dollars, and the dollars kept getting smaller. That is a genuine risk to your plan, but it is a risk to the value of dollars, not to the existence of American businesses. And it argues for owning assets rather than holding cash, which is what this book already tells you to do.

Four objections down, one to go

Each of the four objections is real, and none of them breaks the plan. The average may flatter itself, but the plan is built on the floor beneath it. A market can disappoint for a generation, but the saver who keeps investing through it, year after year, can still earn a respectable return and build meaningful wealth. America’s edge has to be earned again in every generation. And the debt will most likely be inflated away rather than defaulted on, which argues for owning assets rather than holding cash. The fifth risk is the one no chart can show, because it isn’t the market at all; it’s you.

Even if the market delivers, you might not. This is the risk most likely to actually bite you, and the only one that is almost entirely within your control. For an investor in their twenties or thirties, a crash is not the enemy. A market that falls early in your investing life hands you the opportunity to buy companies on sale. Over a working lifetime, an early crash is a gift, and the right instinct is to lean into it, not run from it. The real danger is the behavior gap: selling in fear, sitting in cash, missing the handful of days that carry a decade. That costs ordinary investors more than any market risk ever has. And the falls that trigger the fear are not rare disasters to be dreaded. They are the ordinary weather of investing: a correction most years, a bear market every several years, each one temporary, each one a discount if you keep buying. But a crash arriving just as you begin to withdraw is different, and it is a genuine problem. That is a question for your sixties, and you solve it then by adding ballast as you near the finish, not by flinching now.

That is the whole map: four risks in the market, all survivable on a plan built for the worst the market has done, and one in the mirror that only you can manage. Next, that fifth risk up close, in a single month I have not forgotten: March 2020.

Coming next: What Could Go Wrong? Part two: The Fifth Risk, March 2020

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

Subscribe free →

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. Subscribe to get each new part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Greg M. Ostroff, CFA

Start Now

Start Now · Part 11. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

A quick note on who this chapter is for. Everything else in this book is written to you, the person doing the saving. This chapter is the exception: it’s the one worth sharing.If a parent, grandparent, or other relative is in a position to help, funding your Roth is one of the most powerful gifts they can give, and often they simply don’t know it’s possible. So read it to understand the strategy, and if it fits your family, pass it along to the person who might help. What follows speaks to that giver, but the person who benefits is you.

Everything in this book points to the same conclusion: the earlier money goes into a Roth, the more time it has to compound. One lesser-known way to act on that is for anyone in a position to help, a parent, grandparent, or other relative, to give a young American the cash to fund a Roth they might not otherwise prioritize.It is a simple, legal, and powerful way to help the next generation start early, and it costs the giver very little in tax terms.

The most common case: a young adult just starting out.

Case Study · Emma, 22

Emma is 22, a working musician with gig income, no steady employer, and certainly no 401(k). She’s stretched, covering rent, gear, and the cost of becoming independent, and she assumes retirement saving can wait, because there’s simply no room for it now. But she’s earning, which is all a Roth requires, so her grandfather John funds one for her, to compound for fifty years, long before she’d have thought to start herself.

Yet those early years are the highest-leverage ones in this entire book: a dollar saved at 25 has the longest runway to compound, and that window never comes back. A parent’s or relative’s gift lets a young person capture those irreplaceable years without sacrificing the independence they are building. They keep their own paycheck for living expenses while the gift funds the Roth. And because it grows inside a Roth, the government never takes a share of what it becomes. Once the young person is more established, they take over the contributions themselves and carry the account for the next thirty or forty years. It is a modest gift that decades of tax-free compounding can turn into a fortune.

The core move turns on a simple fact: money is fungible. You can give the young person cash and let them make the contribution, or you can help them by contributing directly: the IRS does not care where the dollars came from, only that the contribution stays within the limits below. The practical effect is that your gift funds the Roth while the young person’s own paycheck stays in their pocket.

The one change worth making

There’s a quiet reorder hiding in this. Families who give often default to the easy thing: cash that gets spent, or a plain savings or brokerage account, to keep it simple. The better move is to fund the Roth first. Put in up to what the young person earned that year, and only then send anything left over wherever else you like. The size of the gift matters far less than the order: even a small amount, routed into a Roth early, becomes the most valuable dollar you could give. It’s the gift most people don’t realize they’ve been giving backwards.

The one binding constraint is earned income. This is the rule that trips people up. To contribute to a Roth, the recipient must have earned income (wages, salary, or self-employment income) for the year, and the contribution is capped at the lesser of the annual limit ($7,500 in 2026 for those under 50) or their total earnings16. So a young person who earned $4,000 can contribute at most $4,000, no matter how large the gift. Someone with no earned income cannot contribute at all that year. Allowances, investment income, and the gift itself do not count as earned income.

The gift sits well within tax-free gift limits. For 2026 you can give up to $19,000 per recipient ($38,000 for a married couple who split the gift) without using any of your lifetime gift and estate tax exemption or filing a gift tax return17. Since a full Roth contribution is $7,500, a gift to fund one sits comfortably inside the annual exclusion.

Why it is worth knowing. One $7,500 gift, made at age 20 and never touched, passes half a million dollars by 75 even at the floor, about $174,000 in today’s purchasing power. The age at which it is given changes everything. Three such gifts, at 20, 21, and 22, $22,500 in all, reach $1.4 million at the floor: nearly $500,000 in today’s dollars, twenty-two times the money given. That would be the worst case the market has produced on record. At the long-run average, the same three gifts reach nearly $4 million, about $1.3 million in today's dollars, fifty-nine times the gift. For a family, it is among the most efficient and powerful ways to pass wealth along. The gift is small enough to be tax-free to the giver, and every dollar of growth it produces is tax-free to the recipient. Roth assets generally pass to heirs tax-free as well, as Section 2 noted.

A single $7,500 contribution, held to age 75, shown in nominal dollars and in today’s purchasing power (2% inflation). Every dollar of it tax-free, from one contribution.

Notice the rule hiding in the table: every five years of delay costs about a third of the result. Twenty to twenty-five, twenty-five to thirty, thirty to thirty-five. Each five-year wait gives up about a third of what the gift would have become, roughly 32% less at the 8% floor and 38% less at the 10% average. The exact percentage moves with the return you assume, but the compounding logic behind it does not.

Emma is seventy-five. The gigs came and went; the account did not. The single $7,500 contribution John made for her, in a year she could not have spared the money herself, is worth about $1.2 million at the long-run average and about $443,000 even at the worst case the market has ever produced. That is about $410,000 and $155,000 in today’s purchasing power, every dollar of it tax-free.30 John spent $7,500 once. What he actually gave her was fifty-three years, which is the one thing in this book that cannot be bought later.

What if the young person is a minor? A working minor with a part-time or summer job can still have a Roth: a parent or guardian opens a custodial Roth IRAand funds it up to the minor’s earned income, with control passing to the child at the age of majority in their state. Either way, keep a simple record. Because the contribution depends on earned income, it is worth documenting what the young person earned: a W-2, or for informal work like babysitting or yard work, a note of who paid what and when, in case the contribution is ever questioned.

What about 529 plans and 530A accounts? Two other accounts come up when people talk about saving for a child, and both are worth a moment, if only to see why the Roth still wins. A 529 plan takes after-tax money, grows it tax-free, and pays out tax-free, but only for qualified education, such as tuition. Spent on anything else, the earnings are taxed and penalized. It’s an excellent tool for financing higher education, but it does nothing for retirement. However, leftover 529 money can now be rolled into the child’s Roth, within limits. That makes it a useful bridge between the two.

A 530A account (also known as a Trump account), created in 2025, is newer and more flexible. The federal government seeds one with $1,000 for every U.S. child born from 2025 through 2028, and families can add up to $5,000 a year. The money sits in low-cost, broad stock index funds: index investing by design. But watch the tax treatment. Contributions go in after tax, the account grows tax-deferred, and at 18 it converts to a Traditional IRA, so the gains are eventually taxed as ordinary income on the way out.18It is, in effect, a nondeductible Traditional IRA for children, and it carries the exact disadvantage this book keeps returning to: you pay tax on the growth at the end.

Set the Roth beside them and the contrast is clean. The Roth is the only one of the three in which a lifetime of growth and every dollar withdrawn are completely tax-free, for any purpose in retirement, no education requirement, no ordinary-income tax on the gains. Its one condition, that the child have earned income, is exactly what makes the gift-funding strategy in this chapter work. So claim the free $1,000 if your child is eligible, use a 529 if school is the goal, but for a young person with earned income the smartest long-run home for the money is still the Roth.

One caveat cuts the other way. Because a Roth requires earned income, it isn’t available to a young child who can’t yet work, and that’s where a 530A account earns its keep. The free $1,000 is worth claiming for any eligible newborn, and tax-deferred growth in a low-cost index fund still beats a plain taxable custodial account, where gains are taxed along the way. Think of it as a bridge: the 530A account (or a 529) for the youngest children, and the moment a real paycheck arrives, a summer job, say: that’s the signal to start funding a Roth.

Note

A note of caution

This is a general illustration, not tax advice. Edge cases (self-employment income, the “kiddie tax,” whether the young person is claimed as a dependent, and state rules on custodial accounts) can complicate the picture. The kiddie tax, for example, never touches the Roth itself; it applies only to investment income in a taxable or custodial account. A short conversation with a CPA before acting is wise.

So, Grandma, skip the socks

We all like socks from Grandma in the Christmas stocking, but they won't last a lifetime and they won't make anyone a millionaire. Ask for a Roth IRA instead. It's the one gift that's still growing fifty years after it's opened, and the most valuable thing Santa can leave under the tree.

✦

Coming next: 8 · What Could Go Wrong? Part one: The Four Objections

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 10. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

The Bigger Picture · Chapter Six

The body of this book shows how to build retirement wealth. This section steps back to ask why that job falls so squarely on the individual in America in the first place, because understanding the why is part of the reason to start early. The short answer is that the United States has chosen, by design and by drift, a retirement model that leans on personal saving more than almost any other wealthy nation.

✦

A Story · Two Careers, Fifty Years Apart

Picture two people. Neither one is real, but almost everyone knows someone like both of them.

Ray went to work in 1975 and stayed at the same company for thirty-one years. He was not an investor and would have laughed at the word. He never chose a contribution rate. He never picked a fund. He could not have told you what a fund was. He signed a form on his first day and did not think about it again. When he retired, a check arrived every month, and it kept arriving. He retired in 2006, and by then the company had long since stopped offering that pension to anyone hired after him.

He had also bought a house in 1978. That part was a decision, though he made it for the ordinary reasons people made it then. He wanted somewhere to live, and that was simply what you did. Thirty years of payments later it was his. He never once described it as a savings plan, and he never chose one. The savings plan came disguised as a place to live.

So Ray’s retirement had three parts, and he had deliberately built none of them. A pension he was enrolled in. A house he bought because he needed somewhere to live. Social Security, withheld before he ever saw it. His entire retirement was assembled out of decisions he made for other reasons.

His granddaughter Abby started work in 2025, in the same line of work, at a company he would not recognize. On her first day, human resources sent her a welcome packet with a login to a benefits website run by an outside firm she had never heard of. She has not been enrolled in anything. She has been handed a door.

Behind the door is a 401(k) she is eligible for. Having access to it is not the same as putting money in it, and nothing goes in until she says so. It is an account with her name on it and nothing in it. The company is not hiding anything: there is a PDF explaining the match, a menu of about twenty funds with names that mean nothing to her, and a field asking what percentage of each paycheck she would like to contribute. Everything she needs is there. It is simply written for someone who already knows the answer.

And nobody is going to make her decide. Newer plans are now required to sign people up automatically and start the contributions for them. Her employer’s plan is older than that rule, so it is exempt: nothing happens unless she acts. If she never opens that email, the account sits there exactly as it is: available, correct, and empty. In 2025, about 72 percent of private-sector workers had a retirement plan available to them at work, and about 53 percent were actually in one.29 The gap between those two numbers, roughly one worker in five, had the plan sitting right there and never started it.

If she does start, the decisions do not stop. She has to choose which funds to buy and in what proportions, decide whether to change that mix as she gets older, and keep contributing through every downturn along the way. She carries the risk if the market falls in the wrong decade. And there is no guaranteed amount waiting at the end, because nobody is promising her one.

The house may not be there either. On her salary, in her city, the down payment is years away and moving away from her.

Here is the part that is easy to miss. Abby is not being cheated. She takes home more of every paycheck than her counterpart in France or the Netherlands, where the state pension replaces far more income and the tax bill is far larger. What she has been handed is not a smaller share. It is a different job.

Ray’s plan ran whether or not he understood it. Abby’s runs only if she starts it, and then keeps running it.

The work that used to be done for Ray is now Abby’s own work. That is not a complaint. It is a job description, and it is fair to think the job is harder than it needs to be. She can do that job the complicated way or the simple way, and the simple way is what the rest of this book is about. Her benefits website will show her the options. It will not tell her which one to pick.

✦

6.1

The American bargain: lower taxes, more responsibility

In much of Europe, and across the OECD, the public pension replaces far more income. The average net replacement rate for a full-career earner is about 63%, versus roughly 50% in the United States, and several countries, the Netherlands and Portugal among them, exceed 90%9. Many also provide universal healthcare and subsidized elder care, the costs that rise most steeply with age. They pay for it with far higher taxes. The United States collects only about 25% of its economic output in taxes, near the bottom of the developed world, against an OECD average of roughly 34% and about 44% in France10. Lower taxation is the counterpart to a smaller state: an American keeps more of each paycheck but must accumulate more private wealth to reach the same security. That extra take-home pay is precisely the raw material. Redirected into a Roth rather than spent, that becomes the private pension the state does not provide.

None of this is a modern failure; it is historically normal. Funded retirement is largely a 20th-century invention that has already crested. In 1980, about 38% of private-sector workers were covered by a traditional defined-benefit pension, the kind that pays a guaranteed income for life. By 2008 that had fallen to roughly 20%, replaced by defined-contribution accounts: the 401(k) and the IRA, in which the worker contributes, chooses the investments, and bears all of the risk11. The guarantee, in other words, moved from the employer to you. And in much of Asia the model was never funded pensions at all, but a cultural expectation that adult children support their aging parents, a reminder that “the individual saves for retirement in financial markets” is a choice America made, not a fact of nature. It is simply the one we live inside, which is why, if your job offers no plan, the IRA, the account you can open yourself, is the vehicle that puts a real retirement within reach.

It helps to see where that account sits inside the whole American retirement system. The table below lays out the entire landscape, roughly $47.6 trillion, sorted by size. Two things stand out. First, individual IRAs are the single largest pool, about 38% of everything, and they are the one account almost anyone with earned income can open on their own, with no employer required. That is why this book builds everything around them. Second, most of the rest of the system is tied to where you work: a 401(k) at a company, a 403(b) at a school or nonprofit, the TSP if you are federal or military, a traditional pension if you are lucky enough to still have one. If you have one of those, use it, especially for any employer match. (The $9.9 trillion in 401(k)s counts both kinds, traditional and Roth 401(k); the short note after Chapter 2 walks through how to use them.)40

Source: Investment Company Institute, Quarterly Retirement Market Data, First Quarter 2026; Traditional/Roth shares from ICI research (SEP and SIMPLE IRAs make up the remainder). Totals may not sum exactly due to rounding.

The Roth is still the smallest pool on this map, not because it is the weakest but because most people have never heard the case for it. Now you have.

6.2

Home equity used to be the plan, but it’s slipping out of reach

For most of the last century, the way an ordinary American family built wealth wasn’t the stock market at all. It was the house. You bought one young, took on a big mortgage, and paid it down a little every month for thirty years. It was a forced savings plan disguised as a place to live: by retirement the mortgage was gone, and the equity, often the largest asset the family owned, was yours. For generations, that was the plan.

But that door is closing for a lot of young people. Home prices have outrun wages for two decades, down payments have ballooned, and in much of the country a house is simply out of reach on an ordinary salary. So the sensible-sounding response is, “I’ll just rent.” In the short term, that may well be the right call. But stretch it across a lifetime and notice what is missing: the forced savings plan that a mortgage quietly ran for Ray never starts.

Here’s the reassuring part. You can build that equity yourself, without the house.It is the same old idea, own something that quietly compounds for decades, but stripped of the barriers. No down payment, no six-figure mortgage, no property taxes or upkeep, no single illiquid asset tied to one city. A Roth IRA and a low-cost index fund let you start small and own a slice of the entire economy, compounding for decades, tax-free. If a house isn’t in reach, that isn’t a reason to give up on ownership. It’s the strongest reason yet to start owning a piece of every major company in the country, your own private pension, built one contribution at a time.

No one teaches you this

Financial literacy is not consistently taught in American schools, and most people engage with retirement seriously only as it approaches, treating it as a near-retirement problem rather than a lifelong expense to be funded from the first paycheck, alongside rent, food, and healthcare. That late start is especially costly because of everything in Section 1: the dollars contributed in one’s twenties and thirties have the longest runway to compound, and they are the hardest to make up later.

6.3

Longer lives, and a world that rewards owners

Two trends are raising the stakes for younger savers, and both point the same way. The first is certain: people are living longer, so retirement is a longer, more expensive stretch to fund, which makes an early start matter even more for today’s 30-year-olds than it did a generation ago. The second is only a possibility, but it cuts in the same direction. If the gains from new technologies like AI flow mainly to the shareholders of the companies deploying them rather than to wages, then owning a stake in that growth becomes one of the most important ways an ordinary person shares in it. A Roth is what makes that stake possible.

Note

The bottom line

None of this is cause for fatalism. The same self-reliant system that puts the burden on the individual also hands them a powerful funding source and tax-advantaged tool to overcome that burden. And, as the rest of this book shows, starting early makes the task very achievable. The purpose of this section is only to make the why explicit: in the American model, no one is coming to fund your retirement for you, so the sooner you begin, the easier it is.

✦

6.4

Social Security was built as a floor, not a replacement

Social Security was never meant to fund a whole retirement. Its own actuaries estimate that someone retiring at 67 who earned about the national average wage has about 41% of their prior earnings replaced. The higher your earnings, the smaller the share. Someone who earned roughly half again as much gets about 34% replaced. Someone who earned at or above the payroll-tax cap every year gets less than 27%. Lower earners get proportionally more12.

Financial planners, meanwhile, commonly estimate that maintaining one’s standard of living takes about 70–85% of pre-retirement income13. The difference, often 30 to 40 percentage points, is the “retirement income gap” that individuals are expected to fill themselves. Closing that gap is what this entire book is about.

Social Security was never designed to be your whole pension. It was designed to keep you off the floor, and it does that well. The rest is meant to be yours to build, which is exactly why America hands you the tools to build it.

Approximate Social Security replacement rates for a worker retiring at 67, by career earnings level. Source: Social Security Administration, Office of the Chief Actuary, Actuarial Note 2026.9 (June 2026), Table C: scheduled benefits for a worker born in 1960 retiring at 67, as a percent of career-average earnings; rounded. The progressive formula favors lower earners.

Two further pressures sharpen the point. Social Security’s main retirement trust fund is projected to be depleted in the early 2030s (as early as 2032), after which, absent legislative changes, it could pay only about 78% of scheduled benefits14. And by international standards, U.S. public pensions rank in the bottom third of developed countries for how much income they replace15.

6.5

Put the Two Together: Roth and Social Security

As we just saw, Social Security was built as a floor for retirement, not a replacement. A base you can count on, but only a base. So build on top of it.

Most people do not. Among households approaching retirement, ages 55 to 64, that have saved anything at all, the median retirement balance is only about $185,000, according to the Federal Reserve’s Survey of Consumer Finances. That is far too little to fund a retirement that may last twenty or thirty years. What follows is how you end up somewhere else.

Keep funding a tax-free retirement account at a steady, reasonable level. Start by maxing the Roth IRA (about $7,500 a year, roughly 7.5% of a $100,000 income) and let that habit grow with the inflation-indexed limit. Over a 40-year career it can fund a retirement that replaces the income you were spending the year before you retire. Note what that target actually is. It is the income you were living on, not your gross salary. Those two numbers are not the same. Your gross salary includes the money you were setting aside for retirement and the payroll tax you were paying on every paycheck, and in retirement you do neither. So the number you actually have to replace is meaningfully lower than the salary you retired from. Planners generally put it at 70 to 85 percent of pre-retirement income, as Section 6.4 noted. And higher earners can add bigger accounts, like the 401(k), with far higher limits than a Roth IRA alone.

So how much does the simple thing, a maxed Roth every year plus Social Security, actually replace? Here is the answer for three households on one identical plan: each earner starts at 30 on $100,000 a year, maxes the Roth every year, earns the 8 percent floor, sees pay rise 4 percent a year, retires at 70 on maximum Social Security, and draws the Roth under the 4 percent rule.41 Holding the plan identical, the household structure alone moves the result:

Today’s dollars. Each earner starts at $100,000 a year. Replacement is measured against what that household was spending the year before retiring, not its gross salary.

Why 81 percent is better than it sounds. Measured against spending rather than gross pay, and with payroll tax, retirement saving, and the costs of working all gone, the single saver’s 81 percent essentially means keeping the life they were already living.

Why marriage helps. A married couple stacks four advantages: a spousal IRA lets them fund two IRAs ($15,000) even on one income; the higher $242,000 wall means a one-earner couple may never have to use the backdoor at all; wider joint tax brackets leave more take-home to save; and spousal Social Security adds roughly half again as much benefit. Together, the one-earner couple clears 100 percent outright.

The lesson hiding in the numbers. Because the contribution is a flat maximum while income keeps climbing, the IRA alone replaces a smaller share the faster you rise, about 105 percent at 3 percent income growth, 81 percent at 4 percent, nearer 60 percent at 5 percent. That is not a flaw; it is the point. The maxed Roth is your dependable personal pension. The faster your income grows, the more you lean on the bigger doors in Beyond the Roth IRA: Your Other Options (the Roth 401(k), the solo 401(k), the backdoor) to carry the rest.

A note for higher earners. This plan works because Social Security replaces a large share of a middle income and a maxed-out IRA is a meaningful slice of it. A much higher earner, say above $400,000, would find the same plan covers only a fraction of their income. They would need strategies this book does not cover in detail: a 401(k), a backdoor Roth, taxable accounts, and a conversation with a financial advisor. (Direct Roth eligibility itself phases out far earlier, around $168,000 for single filers or $252,000 for married couples; Beyond the Roth IRA: Your Other Options, in the Toolkit, lays out the routes around that limit.) For the ordinary saver this book is written for, the simple plan is enough.

The Deal America Offers

Put it together and the picture is plain. The employer pension is largely gone, Social Security was built as a floor, home equity is harder to reach, and most of us are never taught any of this, at school or at work, before we need it. But America hands you something in exchange: lower taxes than the countries that still pay their workers a state pension, and the money those lower taxes leave in your paycheck is the money to fund your own personal pension. It also gives you the tax-free accounts to put it in, where compounding can do its best work. Use them, start early, and keep going, and you can build yourself a tax-free retirement income as good as, or better than, the pensions earlier generations were given.

✦

Coming next: 7 · Gift-Funding a Young American’s Roth

Want the rest as it’s written?

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A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 13. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

A Story · March 2020

In March of 2020 I did the one thing I had spent decades telling other people never to do, and I want to tell you about it, because I had every possible reason to know better.

I had been investing in markets for nearly fifty years at that point. I spent nearly twenty years on Wall Street, though I had been gone for almost twenty more by then. I became a Chartered Financial Analyst in 1988. I have been through a lot of market cycles, including some genuinely horrific bear markets and crashes, including both Japan and the dot-com bubble. And I have never thought of myself as a trader. My philosophy has always been to invest for the long run and to choose my entry and exit points, rather than letting the market do that for me.

So for the first seven weeks, as Covid spread and the market moved lower, I was the calm one. The news had been building since the end of January, and all through February and into March, as friends and family called to talk about the markets, I told them what I believed: valuations were reasonable, this was genuinely unprecedented, and it still looked like a short-term event. Stay the course.

The market had already fallen about twenty-five percent. I had cash on the side and, as it fell, I put a good chunk of it to work. That felt like the right move, and in the accumulation years of my life it would have been. But this was not that cash. I was no longer adding to my investments; I was living off them. That money was my buffer, the reserve I spend out of so that I never have to sell into a bad market. I treated a preservation-phase reserve like an accumulation-phase opportunity fund, and I never once framed the decision that way.

It did something else for me too, which I didn’t appreciate at the time. It gave the nervousness somewhere to go. When you have new money to invest, a falling market is an opportunity, and buying into it feels like doing something. It feels good. The urge to act gets an outlet, but one that actually helps you.

But then the buffer was gone. I was fully invested, watching prices fall, with no income arriving and no reserve left. The only remaining source of cash was the portfolio itself.

Somewhere in there an investor I knew started sending me messages. He had sold this. He had sold that. I never asked him what he was doing. He simply kept sending messages, unsolicited. He traded a lot, far more than I ever did, quick to move in and out of things, and I had told him for years that his approach did not work for me, partly because our tax situations were nothing alike. I knew his strategy was not mine. Still, I kept getting these messages. Then I started checking the financial news, which I hadn’t really bothered with in years. I can’t tell you now whether that came before or after what happened next, which tells you something about how clearly I was thinking. Then a message came from him that said something like: this is about capital preservation now.

What happened next is that I sold something. Not for any good reason. I sold my weakest position because I felt compelled to do something, and by then selling was the only something left. The market continued to fall.

Once you have started, it is easier to continue. I began reading what the Wall Street strategists were writing about where the market would bottom. Their targets were another twenty or thirty percent below where we had already fallen. I couldn’t tell you where those numbers came from. I read them anyway. Then I started watching the overseas markets at night, and the futures before the open, and somewhere in there I stopped behaving like an investor and started reacting like a trader.

One morning I woke to a hedge fund manager on the news urgently arguing that the stock market should be closed. I knew that was foolish, but I suspected he was talking his own book, trying to frighten prices down so he could buy more cheaply.

Here is the trap, and it is not the one you would expect. I was probably right about him. And being right is what moved me. If people like that were driving prices lower, then lower prices were coming, and lower prices are an opportunity. I wanted to be there for it. Seeing through the noise is not the same as being immune to it. Sometimes it is the very thing that pulls you in.

I had also built myself a very intelligent argument. This was not an ordinary recession, I reasoned, and not an ordinary bear market. Those are unknown unknowns. This was a known unknown. The government had deliberately put the economy on ice. There would be some level of pain at which policymakers would step in, but I was convinced that level was much lower than where we were. More pain had to come first.

But I had no new money arriving, and the cash on the side was long gone. If I wanted to buy anything, I needed cash available, and since I was tapped out, that meant selling.

So I started selling positions, to create the cash to buy a bottom I was sure was still ahead.

A few trading days later the Treasury Secretary and the Fed Chair made it clear they would do whatever was required. By then the market had already fallen about halfway to the level I had been waiting for. But it never got the rest of the way. It gapped up about ten percent that day, and I missed it. I was away from my desk when the news came out, sitting with cash.

Then I made it worse, which is the part I would most like to skip. The right response was obvious. Two of the most powerful officials in the country had just changed the fundamentals in front of me, and the honest move was to admit I had been wrong and reverse immediately. That is what a rational trader would have done. Instead I went looking for new reasons. I told myself I had missed that move, but that given the depth of the problem, the markets would move lower still. And I didn’t simply keep the argument I had started with. I built new ones, more of them than I had needed to make the decision in the first place, and every one of them kept me out a little longer and got me back in a little higher. It is easier to defend a mistake than to admit one, and defending it is what makes it expensive. For weeks the market ground higher. I kept waiting for the pressure to return. It didn’t. By the time I was fully invested again, stocks had risen roughly thirty percent above where I had been selling. I had missed a couple of years’ worth of good performance, handed over for nothing.

I am an investor, not a trader — I simply wasn’t being one in those weeks.

The money is not the part I regret most. I told people what I had done. For those seven weeks I had been the calm one, telling friends and family to hold. When I reversed myself, I said so. I have no way of knowing what anyone did with that knowledge. Some of them may have raised cash because I had. The embarrassment is not the point. Being wrong with my own money cost me a couple of years of returns, and I can measure that. Being wrong out loud, to people who took my judgment seriously, may have cost them something I will never be able to measure at all. That is what I would take back first.

So what stops me from doing it again?

Not resolve. I had seven weeks of it, and it held right up until the day I had nothing left to buy with. The honest answer is structural, and it has two parts depending on where you stand.

If you are still adding money, this is a far easier problem than it looks, and you already have the solution. Over my investing career I have been very stoic through market corrections, even crashes, holding my positions and adding to them with new cash coming in. I was not braver then. Having a paycheck allowed me to add to my positions or build new ones at lower prices. Every pay period bought more shares, so a falling market arrived as a discount rather than a threat, and the urge to act had somewhere to go that actually helped me. Your contributions are not only how the money grows. They are what keeps you steady while it falls.

If you are no longer adding money, the rule is simpler, and I broke it. Your reserve is not ammunition. It is the thing standing between a market decline and a forced sale, and its whole job is to sit there being boring and available. Spend it into a falling market and you have disarmed yourself at the worst possible moment. That happened before any of the rest of it did.

In both cases: set the rules while you are calm, and turn off the noise. The crash never moved me. The messages, the news I had not watched in years, the futures at three in the morning, those moved me.

There is one more part, and it is the part I think about most. My private investments came through all of it perfectly intact, for one reason. I could not sell them. The protection was not my judgment. It was my inability to act.

So build that inability on purpose. If you are still saving, automate the contributions so the good behavior needs no decision from you; Chapter Ten sets that up in about fifteen minutes. If you are drawing down, ring-fence the reserve so the bad behavior has nothing to reach for. Either way the principle is the same: do not count on being calm. Arrange things so that calm is not required.

✦

Coming next: 8c · The Truly Big Risks

Want the rest as it’s written?

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A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 9. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

Everywhere else in this book the tax rates are federal-only, so the numbers apply to a reader anywhere in the country, but they don’t always represent the full tax picture. Most Americans owe a second layer, state tax, and it lands on exactly the accounts a Roth lets you escape. A Traditional IRA’s withdrawals are taxed by the state as ordinary income. A Taxable account’s capital gains and dividends usually are too, in most states at that same ordinary-income rate, with no federal-style preferential break. The Roth, tax-free at every level, is untouched.

Nine states levy no tax on wages, and their residents owe only the federal figures shown earlier, with one exception: Washington now taxes large long-term capital gains, so a taxable account there is no longer entirely free of state tax.† The other forty-one tax at rates that range widely, so no single example fits everyone. We use California for the rest of this section because it is the most populous state in the country, nearly forty million people, carries some of the highest rates, and is home to the author and to many of the people who ask him for this advice. Treat California as one worked example. Your own state, brackets, and circumstances will differ. It is worth a look at your state’s figures, or a word with a tax advisor, before applying any of these numbers to yourself.†

† The nine states with no tax on wages are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming; note that Washington now taxes large long-term capital gains (7% above a roughly $278,000 annual deduction, more above $1 million), though gains inside a Roth or other retirement account are exempt. For state-by-state rates, see the nonpartisan Tax Foundation (taxfoundation.org) or your own state’s tax agency (in California, the Franchise Tax Board, ftb.ca.gov).

This section re-runs the base case (start age 30, flat contributions, the 10% average return) for Grace, the café owner from Chapter 2, who chose her door and has been walking through it ever since.

Case Study · Grace, 30

A single filer who owns a neighborhood café she built from nothing and earns about $100,000. In California, state income tax adds to the federal bite. She has no employer plan behind her (she is the employer), so a Roth is the natural home for what she sets aside. How she cleared the runway to get here is worked through in Chapter 10.

Because the Roth is entirely tax-free, California’s tax never touches it. The Taxable account and the Traditional IRA both give up more to the state, so the Roth’s advantage widens. For a middle-income earner like Grace that widening is meaningful, though far gentler than it would be for someone in California’s top bracket.

That $100,000 is a round, illustrative figure: comfortably middle-income in a higher-cost state like California, close to the state’s own median household income of about $95,000, though above the national median of roughly $84,000.

Rates used. A Californian pays two layers of tax, federal and state, and they stack.

Traditional IRA withdrawals are taxed as ordinary income: roughly 22–24% federal, plus California’s ~9.3%. Call it 31% all in.

Taxable account gains are taxed at about 24%: the 15% federal rate on long-term capital gains and qualified dividends, plus that same ~9.3% from California, because California gives investment gains no break at all, taxing them exactly like a paycheck.8(The federal net investment income tax does not apply at this income.)

The Roth pays nothing. Not federal, not state, not on the growth, not on the way out.

Two notes. First, these are representative blended rates for a ~$100K single filer; an individual’s actual rates will vary with income, deductions, and filing status. Second, a 30-year-old earning $100K today will probably be in higher brackets by the time they retire, which is itself a classic argument for choosing a Roth while still young, locking in today’s lower rate. For comparison, a top-bracket Californian at time of withdrawal (50%+ ordinary, 37% gains) would see the Roth’s advantage grow far larger than the figures below.

5.1

After-tax lump-sum value (California)

After-tax lump-sum value for a middle-income (~$100K) Californian. Start age 30, flat contributions, the 10% average return.

5.2

First-year 4% income (California)

First-year income from a 4% withdrawal, after middle-income California tax (~$100K). Start age 30, flat contributions, the 10% average return.

5.3

The Roth advantage: federal vs. California

The table below shows, for this middle-income Californian, the after-tax value of each investment/retirement vehicle and how far the tax-free Roth pulls ahead, with the federal-only figures alongside for comparison.

After-tax values and the Roth’s dollar lead. Start age 30, flat contributions, the 10% average return. The final row repeats the federal-only Roth-vs-taxable lead for comparison.

Reading the table. At age 70 the Roth’s lead over a taxable account grows from + $535,000 under federal-only rates to + $927,000 for this middle-income Californian, and its lead over the Traditional IRA rises to + $1.2 million. State tax nearly doubles the Roth’s advantage. The reason: California taxes the taxable account’s gains at about 24% instead of 15%, and adds state tax to Traditional withdrawals, while the Roth keeps paying nothing. The effect is real but moderate here, and it would be far larger for a top-bracket earner. Chapter 12 tells you what to do with the money once you reach retirement.

5.4

California values in today’s dollars

After-tax lump-sum value for a middle-income (~$100K) Californian, in today’s purchasing power. Start age 30, flat contributions, the 10% average return, 2% inflation.

Grace hands over the café keys at 70 with about $3.7 million that California cannot touch, worth about $1.7 million in today’s money. Had she built the same wealth in an ordinary taxable account, Sacramento and Washington would between them have taken about $927,000 of it, and the state alone accounts for nearly half of that gap. She never filed a special form or made a clever move. She chose the right container at 30 and then left it alone for forty years. (Section 3.4 describes what happens next, when the job changes from building the money to living on it.)

✦

Coming next: 6 · Why This Falls to You

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. Subscribe to get each new part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 8. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

The base case starts at age 30. But the single biggest lever in this entire analysis is when you begin, because the earliest dollars are the ones that compound the longest. This section shows a more complete range of starting points, from an early starter at 25 to later starters at 35 and 40, so the message lands both ways: starting young is a gift, and starting late is still vastly better than not starting at all.

4.1

The age-70 Roth by starting age

Flat contributions, the 10% average return, 2% inflation for the today’s-dollars column.

Reading the table. Starting at 25 instead of 30 boosts the age-70 balance by roughly 60 percent. Even though it adds only five years of contributing, those five years had the longest runway to compound. Just as important, a saver who starts at 40 still reaches roughly $1.4 million tax-free from $247,000 of contributions. The curve rewards early starts handsomely, but every starting age produces life-changing, tax-free wealth.

4.2

Early starter (age 25): the full three-way comparison

Case Study · Carlos, 25

Carlos starts at 25, the year he finishes his electrician’s apprenticeship and lands his first full paycheck. There’s no 401(k) on a job like his, so it is on him. He wants to build the habit of investing in his future before lifestyle creep sets in. At 25 he has forty-five years of compounding in front of him instead of forty, and that one difference boosts where he lands by roughly 60 percent.

After-tax lump-sum value. Start age 25, flat contributions, the 10% average return.

Carlos reaches 70 with about $6 million, tax-free, on an electrician’s income. He is not better paid than Maya and he did not save harder. He put in about $37,500 more than she did, spread across five extra years at the very beginning. He finished with about $2.3 million more.

4.3

Later starter (age 35)

Case Study · Layla, 35

Layla waits until 35. She freelances as a software developer, good money, but no employer to hand her a retirement plan. It took her that long to clear her student loans; the day the last payment goes through, she opens a Roth and starts maxing it, 35 years of compounding still ahead.

After-tax lump-sum value. Start age 35, flat contributions, the 10% average return.

Layla’s ten-year wait cost her about $3.7 million against Carlos’s start, and she still retires with $2.3 million she would never otherwise have had. The day the loans were gone, she went to the max. The lesson is not to wait for that day: as Chapter 10 explains, even a small contribution during the loan years would have kept the door open.

4.4

Never too late to start (age 40)

Case Study · Malik, 40

Malik doesn’t begin until 40. He runs his own small accounting practice, white-collar work, but he’s his own boss, so retirement saving is on him. With two young kids, daycare had swallowed every spare dollar for years; once both start school and those bills stop, he finally has room, opens a Roth, and learns 40 isn’t too late.

After-tax lump-sum value. Start age 40, flat contributions, the 10% average return.

Note

It is never too late

Malik began at 40, with only 30 years until retirement. A maxed-out Roth still grows to roughly $1.4 million tax-free, and holding past 70 keeps multiplying it. The worst starting age is the one that never happens. Whatever your age today, the most powerful step is to open the account and begin.

✦

The same lesson, in paychecks instead of dollars

Everything above is measured in ending balances, because that is what the Roth tables produce. Here is the same lesson measured the way you actually live it: as a share of each paycheck. Suppose your goal is the one planners use, an income at 70 equal to about 80 percent of your last working year’s pay, drawn at 4 percent a year, and suppose your salary grows 4 percent a year along the way.48 What share of every paycheck do you have to put away to get there? If you start at 20 and the market only ever delivers its floor, 13 percent does it. Start at 25 and it is 16 percent. At 30, 20 percent. At 35, 26 percent. At 40, 34 percent, a third of everything you earn, for the rest of your working life. The chart below shows both the floor and the long-run average, and it tells the whole chapter in one line: every five years you wait, the price goes up by about a third.

Two things make those numbers less frightening than they look, and both are in the chart’s dashed lines. Social Security, claimed at 70, replaces roughly 40 percent of a middle earner’s pay, so your savings only have to produce the other 40 percent, not the whole 80; on the floor, that brings the rate down to about 6 percent of each paycheck at 20, 8 percent at 25, 10 percent at 30, 13 percent at 35, and 17 percent at 40. And the floor is the worst the market has ever done over thirty years; almost every stretch on record did better, so at the long-run average the numbers are smaller still. The point is not the exact figure, which depends on assumptions you can argue with. The point is the shape of the line. A twenty-five-year-old who sets aside a tenth of each paycheck, automatically, has most likely solved the problem for life. A forty-year-old can still solve it, but it will cost twice as much of every check, for thirty years, to land in the same place. The cheapest retirement you will ever buy is the one you start paying for now.

✦

Coming next: 5 · A Middle-Income Earner in a High-Tax State

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If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

Start Now

Start Now · Part 6. A free book, published one piece at a time: how ordinary earners build lasting wealth and financial freedom. New here? Start here →

Greg M. Ostroff, CFA

A Story · The Same Thousand Dollars

Grace owns a neighborhood café she built from nothing. There is no employer plan behind her, because she is the employer: no paycheck, no withholding, just the quarter’s profit and a check she writes to the IRS four times a year. Income tax is coming for this money no matter what she does. So one evening after closing, she sets aside $1,000 of profit for her future. Think of it as a seed. Planted and left alone for forty years, it will grow into something many times its size: the harvest. Grace has three places she could plant it, three doors, and the income tax was never the choice. What the taxman is allowed to touch, and when, is.

Behind the first door is an ordinary brokerage account. The seed is taxed before it goes in the ground, and then the taxing never stops: every dividend taxed each spring, and when she finally sells, decades from now, the harvest is taxed too. Seed taxed, growth taxed, harvest taxed. The money works its whole life with a hand reaching into its pocket.

Behind the second door is a Traditional IRA. Here the government makes her an offer: plant the seed untaxed, settle up later. It feels generous. But later means retirement, when every dollar she withdraws, seed and forty years of growth alike, is taxed as ordinary income. The government skipped the seed to wait for the harvest, and the harvest is the biggest pile she will ever have.

Behind the third door is a Roth. She pays her tax on the seed this year, the same as door one, and then something unusual happens: nothing. No tax on the growth. No tax on the harvest, not in her sixties, not in her nineties. The hand touches the money exactly once, while the pile is at its smallest, and never again.

Same woman. Same thousand dollars. She could even plant the identical investment behind all three doors. The only difference is when the tax lands, and over a working life that one difference is worth a lot of money; in Grace’s case, as Chapter 5 will show, hundreds of thousands of dollars. The whole chapter comes down to a single question: tax the seed, or tax the harvest? The Roth taxes the seed.

✦

If compounding is the engine, taxes are the friction. Every dollar paid in tax along the way is a dollar that stops compounding. A dollar not invested early is enormously expensive in lost future growth. Tax-advantaged retirement accounts exist to remove that friction, and over a lifetime the difference is substantial.

Of the accounts this chapter compares, this book builds on one in particular: the IRA, the individual retirement account. It is the one account almost anyone with earned income can open on their own, with no employer or workplace plan required, which is exactly why it has quietly become the single largest pool of retirement savings in the country. The Roth is its fully tax-free version, and that is the account this book is built on. (Section 6.1 maps where the IRA sits within the whole U.S. retirement system.)

2.1

How the three accounts actually work

When you hold your investments in an account at a brokerage firm, there are three main kinds to choose from, each taxed in a very different way: an ordinary taxable account, a traditional IRA, and a Roth IRA. Which one you choose does more to shape your final result than almost any other decision in this book, so it helps to see exactly how each one works.

Imagine you have $1,000 of pre-tax earnings to put toward retirement this year, and your income-tax rate is 24%.34

* Roth IRA: pay tax now, never again. You pay income tax on the money first, so about $760 goes in. It grows for decades, and in retirement the entire balance, your contributions and all of the investment growth, comes out completely tax-free. Nothing is taxed on the way out, at any rate.

* Traditional IRA: skip tax now, pay it later as income. The contribution is pre-tax, so the full $1,000 goes in and your taxable income drops by $1,000 this year, a tax saving of about $240 today. The money grows untaxed. But every dollar withdrawn in retirement, contributions and growth alike, is taxed as ordinary income, the same schedule as a paycheck, which is higher than the capital-gains rate.

* Taxable account: pay tax now, a little each year, then the lower capital-gains rate at the end. Like the Roth, you invest after-tax money, so about $760 goes in. Unlike the IRAs, it is taxed as you go: dividends are taxed every year, a small but steady drag. When you finally sell, your gains are taxed at the long-term capital-gains rate, which is lower than ordinary income rates.

Three accounts, three different deals with the tax man:

The same $1,000 of pre-tax earnings enters each account differently: the deduction lets the Traditional invest the full $1,000, while the Roth and the taxable account invest $760 after tax.

Dollar for pre-tax dollar, at the same tax rate today and in retirement, the Traditional and the Roth come out exactly even. The Traditional’s larger $1,000 head start is cancelled precisely by the ordinary-income tax due at the end, landing in the same place as the Roth’s $760 growing tax-free.

What breaks the tie is the contribution limit. The limit caps the nominal amount, not the pre-tax amount: at most about $7,500 either way. And $7,500 of already-taxed Roth money shelters more real wealth than $7,500 of pre-tax Traditional money that still owes income tax. So a saver who maxes out, as the case studies assume, quietly gets more into the Roth, and it pulls ahead.

The Traditional saver has one way to close that gap: invest the yearly tax refund the deduction produces, in a separate account. Do that, and the Traditional roughly ties the Roth. But most people spend the refund. Then only the capped contribution compounds, and it is taxed at the high ordinary rate on the way out. A taxable account, whose gains face only the lower capital-gains rate, can end up ahead of the Traditional. That realistic, spend-the-refund assumption is the one this book uses (see Section 3.3).

One thing never changes: the Roth. Because it is taxed neither along the way nor at withdrawal, the Roth beats the taxable account in every scenario: the taxable account always pays at least the yearly dividend tax and the final capital-gains tax that the Roth escapes entirely. The interesting contest is between the Traditional IRA and the taxable account; the Roth sits above both. Inside either IRA, dividends and gains are also never taxed year to year, so the full balance compounds untouched, the taxable account’s annual drag is the price of having no contribution limit.

2.2

The advantages of the Roth

For a long-horizon investor, the Roth structure carries several distinct advantages:

* Decades of growth come out tax-free. In the case studies, a few hundred thousand dollars of contributions grows into millions. In a Roth, every dollar of that growth is yours.

* No required minimum distributions (RMDs). Traditional IRAs force taxable withdrawals beginning at age 734 whether you need the money or not. Roth IRAs have no such requirement during the owner’s lifetime, so the balance can keep compounding untouched, exactly the behavior modeled in these case studies.

* A hedge against higher future tax rates. A Roth locks in today’s tax cost. If income-tax rates rise over the coming decades, the Roth holder is unaffected, while the Traditional holder pays the higher future rate on every withdrawal.

* “Denser” dollars when you max out. $7,500 in a Roth is $7,500 of spendable, already-taxed money. $7,500 in a Traditional IRA still has a tax bill attached. For a saver who hits the contribution limit, the Roth therefore packs more real, after-tax wealth into the same capped contribution.

* Tax-free to heirs. Inherited Roth assets generally pass to beneficiaries tax-free, making the Roth a powerful vehicle for transferring wealth as well as funding retirement.

One qualification sits under all of this: the entire tax-free promise rests on current law, and Congress can change tax law. Proposals to cap very large Roth balances or alter the rules surface from time to time. This is worth a sentence of awareness, not worry: wholesale repeal of a benefit that tens of millions of ordinary savers rely on is a heavy political lift, and nothing about today’s law suggests the core deal is going away. Plan on the rules holding; just don’t assume they are carved in stone.

✦

✦

A Note for W-2 Employees

If Your Job Has a 401(k)

If you have a company 401(k), read this. If you don’t, skip to the next chapter.

If you’re a W-2 employee, on a company’s payroll, with taxes withheld from each paycheck, the first retirement account you meet probably isn’t the Roth IRA; it’s the 401(k), offered through your employer. That’s fine. The 401(k) is a good tool, and everything this book teaches (start early, own a low-cost index fund, let it compound untaxed, don’t sell) works exactly the same inside it. The one real difference is tax on the way out: a traditional 401(k) is taxed when you withdraw it, while a Roth comes out entirely tax-free. That is why this book uses the Roth to see the idea in its cleanest form. Here’s how the 401(k) and the Roth IRA fit together. (If you’re an independent contractor, you get a 1099, not a W-2, and you’re considered self-employed for retirement purposes; your version, the solo 401(k), is in Beyond the Roth IRA: Your Other Options, in the Toolkit at the back.)

There’s one rule that comes before everything else in this book, and it applies only to you: if your 401(k) offers an employer match, contribute enough to get the full match first. A match is free money: your employer adds, say, fifty cents or a dollar for every dollar you put in, up to a limit. That’s an instant 50% or 100% return before the market does a thing, and nothing in these pages can beat a guaranteed doubling of your money. So the order is:

* Contribute to the 401(k) up to the full match, free money, first.

* Then fund a Roth IRA, the account this book is built around, for its tax-free growth and flexibility.

* Then, if you can, put more into the 401(k), up to its limit.

A few things worth knowing:

* You can do both in the same year. A 401(k) and a Roth IRA are separate buckets with separate limits: in 2026, up to $24,500 in the 401(k) and another $7,500 in the Roth IRA. They don’t reduce each other.

* Many 401(k)s now offer a Roth option. A “Roth 401(k)” works just like the Roth in this book (after-tax in, tax-free out) but with the much higher 401(k) limit. Same idea, bigger scale. Early in your career, when your tax rate is relatively low, choosing it over the traditional, pre-tax option is usually the better call, so if your plan offers a Roth 401(k), make that choice on purpose rather than leaving it to a default.

* The match may “vest” over time. Some employers require you to stay a few years before their contributions are fully yours; your own money is always yours immediately.

* When you leave a job, the 401(k) comes with you. You can roll it into an IRA, or into your next employer’s plan. Nothing is stranded. One caution: if you may ever need the backdoor Roth described in Beyond the Roth IRA: Your Other Options, prefer the new employer’s plan, because pre-tax money sitting in an IRA makes that conversion taxable.

Case Study · Sophia, 26

Sophia is 26, a mechanical engineer at an aerospace company. When she signed her offer letter, the match was one line in the benefits packet, and nobody at the company ever mentioned it again. She looked it up herself and realized what that line actually said: free money, every paycheck, for anyone who asks. Her employer matches 401(k) contributions dollar-for-dollar up to 5% of her salary, so her first move is to put in that 5%. She isn’t leaving a 100% return on the table. Then she opens a Roth IRA and funds it for the tax-free growth and flexibility. With both running, she circles back and pushes her 401(k) higher. Same principle, three steps, no wasted dollars. And if she eventually maxes the 401(k) too, the totals climb far higher still. It’s the same math, just more fuel. Run those three steps for a working lifetime and Sophia finishes ahead of every table in the chapters ahead: she started four years before Maya, and her employer paid for part of every mile.

That’s the whole of it if you work for a company: grab the match, then follow the same moves as everyone else. From here, the rest of the book reads the same whether your dollars sit in a Roth IRA or a 401(k). The vehicle changes, and its tax timing can too, but the engine does not: start early, own the index, let it compound, and don’t sell.

Coming next: 3 · Case Studies

Want the rest as it’s written?

New chapters arrive every Sunday, free. Subscribe and each one lands in your inbox.

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. Subscribe to get each new part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is pass it forward to one person who needs it.

And if you’d like to give back, pay it forward: donate any amount to a cause you believe in. Your money goes straight to the charity you choose. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

If these pages have moved you to act, and you’ve opened the account, bought the fund, or set up the transfer, tell me about it: what did you do, what got in the way, what surprised you? Leave a comment or just reply to this email. First name, or none. I read every one.

Start Now is educational, not investment, tax, or legal advice. Nothing in it is a recommendation to buy or sell any security. Consider your own situation, and talk to a professional where it matters.

This is part of Start Now — a complete guide to building your own tax-free pension, published free, one piece at a time. New here? Start Here →

Years ago I tried to explain compounding to our eldest son at the kitchen table, and I could see it wasn’t landing. So we built a spreadsheet.

The first one showed his money growing the way a bank grows it: the same small amount added each year, a straight line marching politely across the page. Fine. Boring. Understandable.

Then we built a second one, where the growth was allowed to earn growth of its own. For the first ten years the two lines sat nearly on top of each other, and he was unimpressed. Around year fifteen they began to separate. By year thirty the first line was still marching along the bottom of the screen and the second had walked off the top of it.

That is this chapter in a single image, and it is the part almost nobody feels until they see it: compounding is boring for a long time, and then it isn’t. The dullness of those early years is not a sign that it isn’t working. It is exactly what it looks like when it is working.

For ten years they look like the same decision. They aren't.

Compounding is the simple idea that the returns you earn begin to earn returns of their own. A dollar of gain, left invested, becomes a base for the next year’s gain, and the year after that, and the year after that, etc. Over a few years the effect is almost invisible. Over a working lifetime it becomes the single most powerful force in personal finance. This first section builds the intuition for why that is, why the effect becomes dramatic only after a couple of decades, and why, despite the stock market’s year-to-year turbulence, long holding periods have historically been remarkably dependable.

Here is that engine in its simplest form: what a single dollar invested at age 30 becomes by various ages, at the 10% long-run return:

Growth of $1 at a 10% annual return. The same multiplier applies to any contribution.

A person who invests $1,000 in a single year at age 30 has roughly $45,000 from that one year’s contribution by age 70, when it grows at the 10% long-run compound return of the stock market as measured by the S&P 500; someone who does it every year accumulates the millions shown in the case studies. The multiplier is the lesson, not the size of the contribution.

1.1

Linear growth versus exponential growth

It helps to start with the contrast between simple interest and compound interest – or linear growth versus compound growth. With simple interest, you earn the same fixed amount every year, because the gains are skimmed off rather than reinvested. Growth is a straight line. With compound interest, the gains stay in the account, and those gains go on to earn gains of their own. Growth earns growth. The line stops being straight and starts to curve upward, gently at first and then steeply.

Consider a single $10,000 investment earning 7% a year. This 7% is the stock market’s long-run return after subtracting inflation, its “real” return, which is simply the 10% nominal return used elsewhere in this book , less long-run inflation. Simple interest on it adds a flat $700 every year, forever. Compounding adds 7% of an ever-larger balance: $700 in year one, $749 in year two, $1,287 in year ten, and nearly $9,800 in year forty. The table below shows how the two diverge.

A single $10,000 investment at 7%. The advantage of compounding is trivial early but overwhelming later on.

1.2

The rate of return matters enormously, eventually

Not all compounding is equal. When you invest in a bank CD or money-market fund, where your money gets reinvested daily, the returns compound too, but at a relatively low rate, call it 4%. A diversified stock portfolio has historically compounded at roughly 10% including reinvested dividends, its long-run compound return since 1928 (more on that figure shortly, and in full in Show Me the Numbers, in the second half of the book). In the early years these two paths look almost the same, which is exactly why the difference is so easy to underestimate. Given enough time, though, the higher rate doesn’t just win. By year forty the stock path is worth roughly nine times the CD path.

A single $10,000 investment.

1.3

Why it “goes vertical” after 20–30 years

The curve’s late steepness is not an illusion or a quirk of the chart. It is the mathematics of repeated doubling.

A useful shortcut, the “Rule of 72,” says money doubles in roughly 72 divided by the return rate. At 10%, that is about every 7.2 years. At 4 percent, the kind of return cash or safe bonds might earn, the same money takes about 18 years to double, about two and a half times as long.

The crucial point is that every doubling is larger in absolute dollars than all the growth that came before it combined. Going from $1 million to $2 million adds a full million dollars in a single step, as much as the entire climb from $10,000 up to $1 million put together. Because the early doublings happen on small balances, the first two decades feel slow; because the late doublings happen on large balances, the final two decades feel almost unreal. This is why starting early is worth so much more than saving more later: the early dollars are the ones that get to double the greatest number of times.

Run your own numbers

Every figure in this book comes from the same three inputs: what you put in, how long it compounds, and at what rate. Change any one of them and the answer changes, which is why the case studies ahead are illustrations rather than targets.

If you want to see your own version, the U.S. Securities and Exchange Commission publishes a free compound interest calculator at investor.gov. It takes about thirty seconds: enter what you have now, what you plan to add each month, the number of years, and a rate. Use 8 percent to see this book’s floor, 10 percent to see its average.

It is a government education tool, so there are no ads, no sign-up, and nothing for sale. Just the arithmetic.

1.4

Stocks are volatile, but time tames the volatility

Everything in this book leans on the market's long-run average of about 10 percent a year, and here is the uncomfortable truth about that number: almost no single year looks anything like it. An average of 10 percent sounds calm, even boring. The reality it summarizes is anything but. In any single year the market might soar 50 percent or fall 40 percent, and a year that actually returns 10 percent is a rarity. So before trusting the average, look at the raw material it came from: every single year on its own.

Chaos, year to year. And yet it matters far less over long horizons than most people expect, because good and bad years tend to offset one another, and the longer the holding period, the more reliably they do so. Take those same 98 years and hold them in combinations, every possible stretch of five, ten, twenty, thirty years, and watch the chaos compress. The chart below uses S&P 500 total returns (with dividends reinvested) for every year from 1928 through 2025. We compute the annualized return an investor would have earned over every possible holding period of a given length: every one-year stretch, every five-year stretch, and so on. The pattern is striking.

Three results stand out:

* 1. The average return is similar across every horizon, from +10.4% to +11.8%.

* 2. No 20- or 30-year period was ever negative.

* 3. Even the worst 30-year stretch in nearly a century still compounded at 8% a year; the best reached 13.6%1.

Single-year returns can land anywhere from −44% to +53%, but stretch the horizon to thirty years and that spread collapses into a tight, entirely positive band of +8% to +13.6%. Note what narrows: the annual rate, not the dollar outcome. Show Me the Numbers shows the ending balances still span nearly five-fold, which is why the plan is built on the floor rather than the band. (Throughout this book, "on record" means the S&P 500 total-return series since 1928, the longest clean annual series available.) This is the empirical foundation for the conclusions and case studies that follow: over a multi-decade horizon, a broad stock index has behaved less like a gamble and more like a slow, dependable compounding machine.

The base case used in this book

Because the case studies span a full saving lifetime (roughly 30–40 years), the natural return assumption comes from the historical 30-year record, which runs from a worst case of 8.0% to a best case of 13.6%. As its base case, this book uses a long-run average of about 10%, the S&P 500’s compound return over the past century. Every conclusion in this book is built on the 8% floor; the tables show the 10% average alongside it, and Section 3.2 brackets every result with the 8% and 13.6% cases. A 10% assumption should be read as illustrative, not a forecast. Show Me the Numbers shows the full record behind this figure: every rolling 30-year return since 1928, and how it has moved over time.

1.5

Why a 4% withdrawal rate?

Throughout the case studies, retirement income is illustrated as a 4% withdrawal. In plain terms: in your first year of retirement you take out 4% of your portfolio (for example, $40,000 from a $1 million balance). That figure is not arbitrary: it comes from one of the best-known ideas in retirement research, the so-called “4% rule.” In a 1994 study, financial planner William Bengen examined every 30-year retirement window in U.S. history and asked, “How much could a retiree take out in the first year, then increase by inflation each year, without running out of money?” His answer was about 4%, confirmed a few years later by three professors at Trinity University in a 1998 study that took the school's name. On a balanced stock-and-bond portfolio, an initial 4% withdrawal lasted the full thirty years in 39 of 41 historical periods; the two that ran out, retirees who began in the late 1960s just before a long stretch of high inflation, are taken up in Chapter 12, later in the book.2

Crucially, 4% is a worst-case-derived number, and may even be a conservative one. Bengen himself noted that the average successful withdrawal rate across history was near 7%, and in favorable periods retirees could have safely taken even more. In his 2025 book, Bengen — the rule’s own creator — goes further, arguing that most retirees today can safely take closer to 5% to 5.5% (his updated worst-case, “never-failed” figure is about 4.7%). More cautious voices point the other way: Morningstar, weighing today’s valuations and bond yields, puts its 2026 base case at roughly 3.9%, and Vanguard suggests a 3.5–4% range3. This book deliberately uses the lower, classic 4% anyway — widely understood and genuinely cautious. The gap is real money: on a $1 million portfolio, 4% is $40,000 in the first year, where Bengen’s newer 5% to 5.5% would be $50,000 to $55,000. We plan on the smaller number on purpose, so that if anything, the plan understates the income these portfolios could sustainably produce.

Balanced (≈ 50/50) stock/bond portfolio; first-year withdrawal then adjusted for inflation annually. Based on Bengen (1994) and the Trinity Study (1998). Past performance does not guarantee future results.

In the case studies that follow, the “4% income” columns show this first-year withdrawal at each possible starting age. Because a Roth’s withdrawals are entirely tax-free, that 4% is money in hand, with no further tax due, and, by the rule’s own logic, is designed to last a full 30-year retirement and then some.

The one ingredient you can't buy

That's compounding: your money earns a return, the return earns its own return, and given enough years, the growth does most of the work. You don't have to be clever, and you don't have to be rich to start. It needs one ingredient, time, and time is the one thing no one can buy back. Which is why the next question is where to keep the money while it grows: somewhere the tax man can't slow it down.

✦

Coming next: 2 · Why Hold It in a Tax-Advantaged Account

A NOTE FROM THE AUTHOR

Start Now is free to read and free to share. A new part publishes free every Sunday. Subscribe to get each part in your inbox as it goes out.

If you find that it helps you, the kindest thing you can do is subscribe and pass it to one person who needs it.

If you’d like to give back, pay it forward: donate any amount to a cause you believe in. I don’t collect a penny of it; it goes straight to the charity you choose, not to me. If you’d like a suggestion, I support the Zach Moses Music, Love & Light Fund at the Sweet Relief Musicians Fund, which feeds musicians in need. sweetrelief.org/zachmoses →

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