Pay Yourself Forward

A typical start plus a steady monthly habit can become a real monthly paycheck later. Every extra $100 now shows up as dollars a month then.

A big ending number is hard to feel. "Three and a quarter million" sounds like a lottery ticket, not like something a regular person builds on purpose. A paycheck is easier. Most of us know exactly what a month costs.

So this page does one translation. It takes a typical early-career retirement balance, adds the same deposit every month from age 27 to 67, and turns the ending pile into a monthly paycheck in today's dollars.^{1 2} That's the whole trick: the same money, said in the language we already think in.

Figure 7.1. From Pile to Paycheck

Start with $18,600. That's the median retirement-account balance among families headed by someone under 35 who have one, in the Fed's 2022 survey.¹ Add $1,200 a month. Grow it at 7% a year after inflation, the SEC's own teaching line for stocks: historically around 10% a year, "closer to 6% or 7% 'real'" once you take out inflation.² After 40 years, from 27 to 67, the pile is $3,244,375 in today's dollars.^M

Then the translation. Take 4% of that in the first year and divide by 12: $10,815 a month.^M The 4% comes from the same research we unpack in Four Isn't Fate: William Bengen's 1994 study and the 1998 Trinity study both treated about 4% of the starting pile as a first-year draw, then the same dollars raised for inflation, over roughly 30 years.^{3 4} It's a planning ceiling from history, not a promise, and here it's just a way to say a pile in monthly terms.

Figure 7.2. The Hundred-Dollar Lever

This is the lever. Move the monthly deposit up by $100 and the paycheck later goes up by $824 a month.^M Forty years of compounding, 27 to 67, turns a hundred-dollar habit into most of a car payment, every month, for the rest of the plan.

The economics underneath is less about math and more about people. When one company switched its 401(k) to automatic enrollment, with nothing else about the plan changed, participation was "significantly higher," and a "substantial fraction" of new hires simply kept the default contribution and fund.⁵ The habit that's already set up tends to stay set up. That works in both directions: a default can hold a habit in place, or hold it at zero.

The same idea runs the other way with raises. In the first Save More Tomorrow plan, people agreed ahead of time to save part of their future raises. 78% of those offered joined and 80% stayed through the fourth raise.⁶ In Thaler and Benartzi's study, saving rates for people who joined went from 3.5% to 13.6% over 40 months.⁶ Those researchers measured saving rates at specific employers, not anyone's retirement paycheck. What they show is that a small step, made automatic, tends to stick.

Picture someone who's 27, with a first real job and a retirement account holding about what the typical young holder has. Not ahead, not behind, just started. If $1,200 a month keeps going in, the page says that turns into a paycheck of $10,815 a month at 67, in today's dollars. We start from the typical balance on purpose, so the example begins where a regular person actually is.¹

What this is not

This isn't a forecast of anyone's return, a safe income, or a suggestion about how much to save. Seven percent is a historical teaching rate, and 4% is a planning ceiling from history. The page shows what a steady habit can turn into under those labeled assumptions. Education, not advice.

Try it: Pay Yourself Forward. Move the monthly deposit and watch the paycheck move.