How Anyone Can Retire Early & Wealthy, Part 1: CDs

Jan 17, 2012 07:31 PM

I'm pretty sure that it's a universal dream for everyone in the world to retire early. Who wants to to be stuck with the rest of the country and retire when you're almost 70 years old? You heard me right, 70! Most people can't go out and do the things they love to do by the time they're 70, unless they've been practicing good health and exercise their entire life.

Not only this, but with the way the economy is, who's to say that there will even be social security by the time this generation retires? This very well may be a bleak reality that we all must face. So why not manipulate the banks to our advantage and make ourselves rich? You can actually do this on nearly any budget.

For today's Null Byte, I will be teaching you how you can effectively use CDs, or Certificate of Desposits to your advantage. Even with the economy the way it is, with CDs at really low rates, it's possible to have a $500,000+ retirement, without even getting social security. Nevermind the fact that we can retire years earlier.

Requirements

$10,000 to start (less if you don't have enough, but $10,000 makes this very easy)
Self discipline to save and not touch your money until you've reached retirement age

Getting What We Need

In order to do this, we need a nice chunk of $10,000 dollars. For an early retirement, this is an incredibly small amount of money to invest to ensure a great future. Say you work at McDonalds, you can gross $250 a week, which comes out to $1,000 a month.

Let's Calculate Some Bills

If you subtract average rent from this for a one bedroom or studio (depending on location), that's $500 subtracted, which is a generous amount. Add the price of food (though, if you make that level of salary, you do qualify for food benefits from the government) and you will only need to spend another $100. Most apartments include utilities, so that's only about $20 for electricity, and $100 for internet and phone. Add in another $10 for self care products. This leaves you with $270 dollars a month profit. That's just 3 years to save the money that you need. This, of course, assumes that you have no other fees.

With most people living with another wage earner (roommate or spouse), and not working at McDonalds, you're likely to be able to acquire $10,000 way sooner.

The Rest of the Math

The theory behind this is simple. Start with your $10,000 dollars, and go to a bank that offers a decent interest CD. Preferably 5% or greater. This is easy. The longer the saving length of the CD, the higher the interest will be. Get the highest interest and longest term CD possible.

After just one year of $10,000 sitting in the bank at 5% APR, you end up with $10,512.67. In order for us to exploit this to the maximum extent, we need continue to add $1,000 dollars to this every year. This is easily done on any budget.

After 30 years with daily compounding interest, you end up with $179,249.15. That's $139,249.15. If you can afford to invest more, which most people could, you can easily boost yourself up to $500,000. This is a bad CD to be honest. I've seen programs through Chase offering 10% APR. You could be a millionaire before you're 55. Even still... Look at the return you get for only $40,000 dollars.

However, this isn't the most effective way to an early retirement. Stay tuned on Null Byte for an upcoming guide to investing into something a bit more risky, but with returns that can nab you millions and a very early retirement. Coming soon: Tax lien investments.

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