Hey everyone, it’s Finance Fridays. As you may know, I was in California this past week for my friend’s wedding. I had the chance to meet up with some friends from high school that I hadn’t seen in a long, long time. So today I want to talk about the “Many Paths to the Top of the Mountain”.

Stock Photo from: Pexels

Here’s the quote:

“There are many paths to the top of the mountain, but the view is always the same.” – Chinese Proverb

In this particular post, I’m using the “top of the mountain” in the financial sense: retirement.

What do you mean?

Well, this quote can be interpreted in different ways I’m sure. However, the way I interpret it is that while many people may share the same goal, the path they choose to get there can (and will likely be) different.

The corollary to this quote is:

“If someone tells you that your path is wrong, then they’re not even on the mountain.”

This further expands on this concept, with the underlying meaning that you shouldn’t listen to people who tell you that your path is wrong. The implication is that anyone who tells you that your path is wrong isn’t even trying to climb the mountain.

Ok let’s refocus:

So I left Southern California back in 1999 to go to college. Although I’ve been back many times, for the most part I haven’t lived in Southern California since then. As you would expect, I’ve lost touch with many of high school friends. To be honest, I feel kind of bad about that. I knew so many great people in high school (and college), and have no idea where many of them are, or what they’re doing.

However, this last visit I was able to re-connect with a few people and I thought it would be interesting to demonstrate their “paths to the top of the mountain”.

I’m going to leave him anonymous and just call him M. I may talk about K next week.

M

While I left to go to college in Northern California, my friend M stayed near home and went to the local community college. He got his Associate of the Arts (AA) degree and then went to a vocational school to get his Microsoft Certified Systems Engineer (MCSE) certification. This doesn’t really exist in the same way as it did back then. Nowadays that certification has evolved into Microsoft Certified Solutions Expert (MCSE).

Nonetheless, while I was still in my junior year of college he was already working his first job. I would imagine this was around 2001 or 2002. After that first job, he’s changed jobs a few times, but he’s kept learning new things and continued to increase his knowledge base and gathered whatever certifications were necessary. I think that he realized in the ever-changing world of information technology (IT) that he will need to constantly learn new things.

He’s been at his current job for the last 12 years and has been putting away $15000 a year or so. Unfortunately, he doesn’t get any kind of employer match.

If we plug that into my handy dandy compound interest calculator and input: 1, $1250, 12 years, and 7% then we get:

$268,329.02

Remember, he’s 36 like me. That’s a pretty healthy start to retirement, and he doesn’t have any significant debt (unlike me). He did recently buy a reasonable condo, but that is his only liability.

I did ask him if he was able to increase his contribution to $18k (the current maximum), but he didn’t seem to know that. I looked back at the old contribution limits, and as you would expect, the limit back in 2006 was $15000. He probably didn’t know he could contribute more, so I’ll let him know later. However, he has a good head on his shoulders so I imagine he’ll increase his contribution.

Either way he’s doing pretty well and he’s pretty happy at his job. If we extrapolate his contributions over the next 25 years we can use these calculations:

$268329, $1500/month ($18000/yr), 14 years, 7% we get:

$1,097,804.27

So $1 million at the time he turns 50.

If he decides to work another 10 years or so, then his contribution limit would increase by $6000 because of the catch-up contribution. I talked about it here. So the numbers we’d used now are:

$1,097,804, $2000/month ($24000/yr), 10, 7%

$2,491,141.38

So $2.5 million at around age 60. At which time I would guess his condo is mostly paid off and he can retire without too many expenses.

M does not want to have children, although marriage is a consideration. $2.5 million is a healthy retirement for him, so he could retire at 60 without too much problem.

So then… he’s on his path to the top of the mountain then?

Exactly!

His path is different than mine, but I am hopeful that we will both reach the top of the (financial) mountain at around the same time. He started putting away some money in 2002, but didn’t really do an automatic contribution until 2006.

What was I doing in 2006?

Oh yes, I was still in medical school, accruing debt.

Remember that hypothetical guy “Johnnie” from high school that had a head start on me, and even worked part-time for awhile? Well, M is like Johnnie, but he’s a real life example of doing the real thing. Compound interest is ridiculous, every year counts. Earn it or pay it.

Once we’re both retired, we can probably find some time to chill at Starbucks, or sip some Johnnie Walker whenever I’m in town.

TL;DR

“There are many paths to the top of the mountain, but the view is always the same.”

“If someone tells you that your path is wrong, then they’re not even on the mountain.”

M and I will have different paths, but I think we’ll both see each other at the top of the mountain.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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