Start Now with Greg M. Ostroff

Start NowStart Now · Part 7. A free series on building your own tax-free pension, one move at a time. New here? Start from the beginning →Thanks for reading Start Now! Subscribe for free to receive new posts and support my work.Greg M. Ostroff, CFARunning the Numbers · Chapter ThreeCase Studies: A Lifetime of Maxing Out an IRAThis section brings it all together, following real people through the plan, dollar by dollar. If you love numbers, dig in. If you don’t, relax: there aren’t many, and each one is here to bring a real person’s story to life.Case Study · Maya, 30At 30, she’s a physical therapist at a small private clinic, no big employer, and no retirement plan waiting for her. A few years in, she’s cleared her training debt, and after watching older colleagues retire on far less than they’d hoped, she decides she won’t be one of them. So she opens a Roth IRA, contributes the maximum every year until she retires at 70, and then leaves the balance invested, drawing a sustainable income from it rather than cashing out.Let’s track three identical-contribution strategies side by side: a Roth IRA, a Traditional IRA, and an ordinary Taxable account, and ask two questions for each age from 70 onward: what is the after-tax lump sum worth, and what annual income would a 4% withdrawal provide? (Age 30 is used as the base because many people begin disciplined saving after a few years of working; Chapter 4 shows what changes if you start earlier or later.)Assumptions* Contributions: Maya puts in the 2026 IRA maximum of $7,500 a year, rising to $8,600 at 50 with the catch-up.5 The first run holds that amount flat; the second grows it 2.5% a year.* Investment return: Every conclusion is built on the 8% floor, the worst 30-year stretch on record (Section 1.4). The tables also show the 10% long-run average, and Section 3.2 shows the full range.* Taxes: Withdrawals from the Traditional IRA are taxed at 24%, and gains in the Taxable account at 15%.6* Comparability: Every figure is after tax, meaning spendable dollars. The Roth needs no adjustment because it is already tax-free.* Inflation: Some tables also state values in today’s dollars, so a future balance can be read in purchasing power you recognize today.7* The age rows: Contributions run through age 69 and stop at 70. The rows for 75 and 80 show that same balance left to compound untouched. A Roth has no required minimum distributions, so leaving it alone is a real choice, and the tax-smart order is to draw down taxable and traditional accounts first and the Roth last. Those rows show what the money does if left alone, not a rule that anyone must wait.* Total contributed over the 40 years (ages 30–69): $322,000. Every dollar beyond that comes from compound earnings, not from saving.3.1The base case: the 8% floor, with the 10% average alongsideStart at the floor. Eight percent is the worst 30-year return on record, and it is the growth rate this book assumes. At an 8% growth rate, a maxed-out Roth reaches $2,152,723 by age 70. That generates about $86,000 a year at a 4% withdrawal rate during retirement. At the 10% long-run average, the same plan reaches $3,720,692. The tables below show both, side by side, across all three account types. Each figure appears twice: in nominal dollars, the balance you would actually see on the statement that year, and in today’s dollars, what that balance would buy at today’s prices. The second number is always smaller, because decades of inflation erode what a dollar buys.The four tables that follow all use the 10% long-run average, not the 8% floor.The floor is what the plan is built to survive; the average is what the plan has more often actually delivered, and it is the fairer basis for comparing the three account types against each other. The 8% floor results appear in Section 3.2, and the two sit side by side in Deep Dive B.Table set one · What the balance is worth at 70 and beyondThe after-tax lump-sum value at age 70 and beyond, assuming the 10% average return, for all three accounts:After-tax lump-sum value, in nominal dollars. Start age 30, flat contributions, the 10% average return. (Selected ages shown.)The same table, in today’s dollars (2% inflation), so the figures can be read in purchasing power you recognize:After-tax lump-sum value in today’s purchasing power. Start age 30, flat contributions, the 10% average return, 2% inflation.Table set two · What it pays out each yearAnd the annual income a 4% withdrawal would generate, depending on the age at which withdrawals begin:First-year income from a 4% withdrawal, after tax, in nominal dollars. Start age 30, flat contributions, the 10% average return.The same income, in today’s dollars (2% inflation):First-year 4% withdrawal income in today’s purchasing power. Start age 30, flat contributions, the 10% average return, 2% inflation.The lump-sum figures assume the balance is left untouched to keep compounding, while the 4% income figures show what you could instead draw in the first year if you began withdrawing at that age. You do one or the other, not both, because the two are the same pile of money: every dollar you withdraw stops compounding, so a balance you are drawing income from cannot also be the balance that grew untouched to the figure in the first table.For simplicity all three accounts are modeled as left untouched after 70. In practice a Traditional IRA faces required minimum distributions beginning at 73, which would draw it down somewhat; a Roth has no such requirement, so its untouched-compounding figures are exact.Reading the tables. At age 70, assuming the 10% average return, the Roth holds $3,720,692 of tax-free wealth, the highest of the three. The Taxable account comes next at $3,185,373. And, perhaps surprisingly, the Traditional IRA trails at $2,827,725. Section 3.3 explains why. The Roth’s lead is structural and percentage-based, so it widens in dollars every year: by age 80 its edge over the taxable account alone is about $1,534,127.NoteYield on Cost, the number that should matterMost savers fixate on the size of the nest egg. The number that actually matters is the cash flow it can sustainably throw off, measured against what you paid to get it.Take the 10% average case from the tables above. Over her career, Maya contributed $322,000. Her first year of retirement income, drawing 4%, is $148,828. In one year she takes out nearly half of everything she ever put in, about 46 cents for every dollar contributed. Then she does it again the next year, and the year after that.Investors call this yield on cost. Both percentages describe the same $148,828 of income, and each one is a yield: think of it as the interest rate the money is paying her. Measured against her balance of $3,720,692, that income is a 4% yield. That is the number everyone quotes, and it is the rate she is drawing from the account. Measured against the $322,000 she actually contributed, the very same income is a 46% yield. That is the number almost nobody looks at, and it is the one that shows what her contributions did: every year, they hand her back 46 cents for each dollar she ever put in. Because it is a Roth, that 46% is entirely tax-free, and it rises every year with inflation; wait until 80 to begin drawing and the yield on cost approaches 120%. No bond, dividend stock, or annuity bought at today’s prices can be made to do this. It can only be grown into, by starting early and refusing to sell.These are nominal figures: about 46% on the 10% average case, and about 27% even at the 8% floor. What they are worth after inflation, in today’s dollars, is shown by the today’s-dollars tables in Section 3.1 above.Even after inflation, the result is life-changing. The Roth’s age-70 balance of $3,720,692 is worth about $1,685,065 in today’s money. That throws off roughly $67,403 a year in today’s purchasing power at a 4% withdrawal. It is entirely tax-free, and it comes from a lifetime contribution of $322,000. That is the magic of compounding inside a tax-free wrapper.3.2What you can and can’t controlSection 3.1 built on the 8% floor and the 10% average. The best 30 years the market has delivered on record is 13.6 percent, the ceiling of what has actually happened. The full floor-to-ceiling tables, across ages 70 to 80, are laid out in Deep Dive A.NoteYou can’t control the return, only whether you keep showing upWhether the market hands you 8% or 13.6% has an enormous effect on the final number, far more than how much you contribute or which account you use. That return is not yours to choose. The forces that set market returns, the era you invest through, the economy, the wider world, are almost entirely outside your control. So the rate you ultimately earn is largely out of your hands.What is fully within your control is something else. Keep investing, regularly and automatically, for as long as you can. Maximize your time in the market. Do not stop, do not panic, and do not sell before you reach retirement and are ready to draw the money down. You cannot control the return, only whether you keep showing up. That, over a lifetime, is the whole game. And the range itself carries its own reassurance: even the pessimistic 8% case still produces a very comfortable retirement. You supply the discipline; the floor is already high.And if the contribution limit keeps rising? Everything above holds the limit flat at today’s $7,500, deliberately conservative, since the IRS does raise it over time. Let contributions grow 2.5% a year and total lifetime contributions climb from $322,000 to about $552,000, 71 percent more money, which lifts the age-70 result from $3.72 million to $4.82 million. That is about 30 percent more wealth. Helpful. Hardly transformative.Now set that against what the next chapter is about to show. Starting five years earlier, at 25 instead of 30, costs you only 12 percent more money, but it produces 61 percent more wealth.Put those two results side by side. They are this entire book, compressed. Contributing 71 percent more money, later in life, buys you only 30 percent more wealth, but contributing 12 percent more money, earlier in life, buys you 61 percent more wealth. The late route costs roughly six times as much extra money and delivers less than half the extra wealth. The dollars that build real wealth are not the biggest ones. They are the earliest ones, because they are the only dollars that get to compound for the entire run. Rising limits are a nice tailwind. Starting now is the engine. (The full tables, and why a smooth 2.5% slightly flatters the real stair-step path, are in Deep Dive B, “If Contribution Limits Keep Rising”)3.3A surprising result: when a Traditional IRA trails a taxable accountThe tables show the Roth comfortably ahead, but they also show something that surprises many people: the Traditional IRA finishing behind an ordinary Taxable account. This is not an error. It follows directly from two facts. First, this book assumes the realistic behavior that the Traditional IRA saver spends the annual tax deduction rather than investing it. Second, a Traditional IRA withdrawal is taxed on the full amount as ordinary income, here 24%, whereas a Taxable account is taxed only on its gains, at the lower long-term capital-gains rate of 15%. The Taxable account does pay a small tax on its dividends every year along the way. But that yearly drag is smaller than the hit the Traditional IRA takes at the end, when the entire balance is taxed at the higher ordinary rate. So the Traditional IRA finishes a step behind.It is important not to over-read this. The Traditional IRA is not a bad choice. Every year, its deduction puts real cash in the saver’s pocket, money that funds their lifestyle along the way. That benefit simply never appears on an end-of-life balance sheet, which is all these tables measure. A disciplined saver who had invested each year’s deduction in a side account would have finished nearly even with the Roth; most savers do not. The realistic takeaway: for the typical person who would spend a Traditional IRA’s tax break, the Roth is not merely better. It is dramatically better, because it forces every tax-advantaged dollar to keep working, tax-free, instead of leaking away as everyday spending.✦3.4What happens at 70Maya turns 70. Over forty years she has put in $322,000, $7,500 at a time, on a physical therapist’s salary at a clinic that never offered her a plan.At the long-run average she is sitting on $3,720,692. If her forty years instead turn out to be the worst forty the market has ever produced, she has $2,152,723. In today’s purchasing power those are roughly $1.69 million and $975,000. She never earned a fortune, never picked a stock, and never had to be right about anything. Even her bad case is the retirement her older colleagues never got.The day the job changesFor forty years Maya’s job was accumulation, and an all-stock portfolio was the right tool for it, because every decline along the way was a discount on her next purchase. At 70 that reverses. She is no longer a buyer but a seller, and a decline is no longer a discount; it is a forced sale at a bad price. So she does what a prudent retiree does and moves a share of the portfolio into bonds and cash, enough to fund several years of spending without touching stocks at all. That is also the balanced mix the withdrawal-rate research assumed in the first place. Accumulating and drawing down are simply not the same job.(Deep Dive F takes up what that shift involves, what it costs, and what can still go wrong.)Doing it inside a Roth is worth a great deal. Maya’s balance contains $3,398,692 of pure gain. In an ordinary taxable account, moving 40 percent of it into bonds and cash would trigger about $203,922 in federal capital gains tax, and $330,353 in California. That is charged purely for the privilege of rearranging her own assets, at the moment she most needs them intact. Inside the Roth she owes nothing. Every dollar stays in the account and keeps working.A Traditional IRA would not tax the trade either. But it carries a larger problem: every dollar that comes out is taxed as ordinary income. The same lifetime of contributions that leaves Maya $3,720,692 in a Roth is worth $2,827,725 in a Traditional. $892,967 of it was never hers. She was never as rich as the statement said, and the Roth statement is the only one that tells the truth.What the pension paysNow the account has to do its actual job. At the classic 4 percent, Maya’s first year is $148,828 on the average case and $86,109 at the floor. In today’s money that is about $67,000 and $39,000, and not one dollar of it is taxed, ever. The payment rises with inflation every year after that.It is worth understanding what that 4 percent is. It is not the typical outcome. It is the rate that survived the single worst retirement start in American history, someone who stopped working in the late 1960s just ahead of a decade of high inflation. Bengen’s revised never-failed figure is about 4.7 percent, which would pay her $174,873 in her first year. He puts the average across all other historical periods near 7 percent. This book plans on 4 percent anyway, on purpose, so that every surprise runs in her favor.Nor was the rule ever built to leave her at zero. The Trinity Study ran every thirty-year retirement from 1926 to 1995, and a balanced portfolio drawn at 4 percent, raised each year for inflation, lasted the full thirty years in 39 of the 41 periods. The authors’ own conclusion was that at 3 and 4 percent, retirees “who wish to bequeath large estates to their heirs will likely be successful.” She is not spending her wealth down. She is living on what it throws off. Deep Dive F takes up the two periods that failed, and the things a real retiree does that the simulation does not.None of this required her to be clever. She opened an account at 30, funded it every year, left it alone, and changed the mix once, at the end, when the job changed.✦Coming next: 4 · It Pays to Start EarlyA NOTE FROM THE AUTHORStart 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 →Questions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one.Thanks for reading Start Now! Subscribe for free to receive new posts and support my work. 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Start NowStart Now · Part 6. A free series on building your own tax-free pension, one move at a time. New here? Start from the beginning →Thanks for reading Start Now! Subscribe for free to receive new posts and support my work.Greg M. Ostroff, CFAThe Idea · Chapter TwoWhy Hold Investments in a Tax-Advantaged AccountA Story · The Same Thousand DollarsGrace 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 — no employer, no 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. (Deep Dive H maps where the IRA sits within the whole U.S. retirement system.)2.1How the three accounts actually workWhen 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.Notice that the same $1,000 of earnings does not start equal in each account: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.2.2The advantages of the RothFor 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 EmployeesIf 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 Deep Dive I.)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:* 1. Contribute to the 401(k) up to the full match, free money, first.* 2. Then fund a Roth IRA, the account this book is built around, for its tax-free growth and flexibility.* 3. 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. Nothing is stranded.Case Study · Sophia, 26Sophia 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 StudiesA NOTE FROM THE AUTHORStart 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 →Questions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one.Thanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com

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.1.1Linear growth versus exponential growthIt 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.1.2The rate of return matters enormously, eventuallyNot 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 Deep Dive A, “The Return Assumptions”). 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.1.3Why it “goes vertical” after 20–30 yearsThe 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 numbersEvery 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.1.4Stocks are volatile, but time tames the volatilityEverything 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%. 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 bookBecause 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. Deep Dive A shows the full record behind this figure: every rolling 30-year return since 1928, and how it has moved over time.1.5Why 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 survived more than 95% of historical 30-year periods, including the worst case on record (a retiree who began in the late 1960s, just before a long stretch of high inflation)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 above 6%, 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.✦Coming next: 2 · Why Hold It in a Tax-Advantaged AccountA NOTE FROM THE AUTHORStart 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 →Questions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one.Thanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com

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 →You'll usually find a glossary like this at the very back of a book. I've put it up front, on purpose. Start Now is being published a little unconventionally, one short piece at a time, each also read aloud as a podcast, so it helps to meet the key terms used early. There are more than fifty terms here, drawn from investing, finance, tax, and accounting, each with a plain-language definition. You don't need to memorize them, and you certainly don't need to read them straight through. Skim them now to get the lay of the land, and come back whenever a word trips you up. Even if all of this is brand new to you, with these at hand you'll be able to follow every step of the reasoning ahead. The terms are listed alphabetically:1099 — The tax form an independent contractor receives. A 1099 worker is self-employed for tax and retirement purposes and uses accounts like the solo 401(k) rather than an employer plan.401(k) — An employer-sponsored defined-contribution retirement account. The employee contributes from their paycheck (often with an employer match), chooses investments, and bears the investment risk. Similar in spirit to an IRA but offered through a workplace.403(b) — A retirement account much like a 401(k), but offered by nonprofits, public schools, and government employers. Contributions come from your paycheck and grow tax-advantaged.529 plan — A tax-advantaged account for education. After-tax money grows and is withdrawn tax-free when spent on qualified education such as tuition; spent on anything else, the earnings are taxed and penalized. Leftover funds can now be rolled into the beneficiary’s Roth IRA, within limits.530A account (Trump account) — A federal account for children created by the 2025 tax law (also called a Trump account). The government seeds eligible children born 2025–2028 with $1,000; family may add up to $5,000 a year, invested in a low-cost U.S. stock index fund. It becomes a Traditional IRA at adulthood.Annual gift tax exclusion — The amount you can give any one person in a year without using your lifetime gift and estate tax exemption or filing a gift tax return, $19,000 per recipient in 2026 ($38,000 for a married couple who split the gift).Annuity — A contract, usually with an insurance company, in which you hand over a lump sum in exchange for a guaranteed stream of income, often for life.Asset allocation — How a portfolio is divided among kinds of investments: stocks, bonds, cash, and anything else. The single biggest driver of how a portfolio behaves, more than any individual pick inside it.Backdoor Roth — A legal technique that lets high earners who exceed the Roth income limits still fund a Roth: they contribute to a Traditional IRA and then convert it to a Roth.CAPE (cyclically adjusted P/E) — The cyclically adjusted price-to-earnings ratio, popularized by Robert Shiller: stock prices measured against average inflation-adjusted earnings over the prior ten years. A high CAPE has historically signaled lower returns over the following decade.Capital gain — The profit when you sell an investment for more than you paid. A long-term capital gain (asset held over a year) is taxed at lower rates than ordinary income at the federal level.Catch-up contribution — An extra amount that savers aged 50 and older may contribute above the standard annual limit.Compounding — Earning returns on your past returns, not just on your original contribution. Over decades the effect becomes exponential rather than linear, the central idea of this book.Custodial Roth IRA — A Roth IRA opened and managed by a parent or guardian for a minor who has earned income; control transfers to the child at the age of majority.Defined-benefit (DB) pension — A traditional pension that pays a guaranteed income for life in retirement, with the employer bearing the investment risk. Now rare in the U.S. private sector.Defined-contribution (DC) plan — A retirement account (such as a 401(k) or IRA) funded by contributions, where the final balance depends on investment performance and the individual bears the risk. There is no guaranteed payout.Dividend — A cash payment a company makes to shareholders out of profits. In a taxable account, dividends are taxed in the year received; inside an IRA they are not.Dollar-cost averaging — Investing a fixed amount at regular intervals regardless of price, so you automatically buy more shares when the market is low and fewer when it is high, a natural byproduct of steady, scheduled saving rather than a strategy you have to time.Diversification — Owning many investments instead of a few, so no single failure can sink you. An index fund is diversification taken to its logical end: own everything, and the winners you could never have picked in advance are always in the net.Earned income (compensation), Money from work, wages, salary, or self-employment income, as opposed to gifts, allowances, or investment income. Only earned income qualifies a person to contribute to a Roth IRA.Exchange-traded fund (ETF) — An index fund that trades like a stock, with rock-bottom fees and no minimum investment. The most convenient way to own a broad-market index fund.Financial capital — The money you have saved and invested: the balances in your accounts, working and compounding on your behalf. The second of the two assets a financial life converts between; see Human capital.Index fund — A fund that holds every stock in a market index (such as the S&P 500), in proportion, rather than trying to pick winners. It captures the whole market’s return at very low cost.Glide path — The planned, gradual drawdown of a portfolio through retirement, paced so the money outlasts the person.Inflation — The gradual rise in prices over time, which erodes the purchasing power of money. This book uses 2% per year to express future dollars in today’s purchasing power.IRA (Individual Retirement Account) — A tax-advantaged account an individual opens to save for retirement, independent of an employer. Comes in Traditional and Roth varieties.Life-cycle finance — The branch of economics that views a financial life as one long arc: borrow to build earning power when young, convert earnings into savings through the working years, then draw the savings down in retirement.Lifestyle creep — The tendency for spending to rise automatically with income, so raises disappear into a larger lifestyle instead of larger savings.Modified adjusted gross income (MAGI) — Your adjusted gross income with certain deductions added back. The IRS uses it to decide who can contribute directly to a Roth IRA, and to set other income thresholds.Net investment income tax (NIIT) — An extra 3.8% federal tax on investment income (such as capital gains and dividends) for higher earners, generally above about $200,000 of income for a single filer.Nominal vs. real return — A nominal return is the raw percentage gain; a real return subtracts inflation to show the gain in true purchasing power. A 10% nominal return is roughly a 7% real return after ~3% inflation.Ordinary income, Income taxed at the regular rate schedule, wages, interest, and Traditional IRA withdrawals. These rates are higher than long-term capital-gains rates.Present value (“today’s dollars”) — What a future sum is worth in today’s purchasing power, found by discounting it back at an assumed inflation rate. It answers “what would that future amount feel like if I had it now?”Pro-rata rule — A tax rule that treats all of your Traditional, SEP, and SIMPLE IRA balances as one pool when you convert money to a Roth. It means a backdoor Roth is only fully tax-free if you hold no other pre-tax IRA money, since each converted dollar is taxed in proportion to the pre-tax share of the total.Purchasing power — What a given amount of money can actually buy. Inflation erodes it over time, which is why this book often states future amounts in today’s dollars.Qualified dividend — A dividend that meets IRS holding-period rules and is therefore taxed at the lower long-term capital-gains rate rather than as ordinary income.Replacement rate — The share of your pre-retirement income that a source (such as Social Security or a pension) provides in retirement. Planners often target a total of 70–85%.Required minimum distribution (RMD) — The amount the IRS forces you to withdraw each year from a Traditional IRA starting at age 73 (rising to 75 for those born in 1960 or later), whether you need it or not. Roth IRAs have no RMDs during the owner’s lifetime.Return — What your money earns in a year, stated as a percentage of what you put in. Put in $100, finish the year with $108, and the return was 8%. It includes both price growth and any dividends the investment paid.Roth 401(k) — The Roth version of a 401(k), offered through many employers. You contribute after-tax dollars, and qualified withdrawals, including all growth, are entirely tax-free, at the much higher 401(k) limit.Roth IRA — An IRA funded with after-tax dollars; it grows tax-free and qualified withdrawals in retirement, including all growth, are entirely tax-free.Rule of 72 — A shortcut: divide 72 by the annual return to estimate how many years it takes money to double. At 10%, roughly every 7.2 years.SEP-IRA — A Simplified Employee Pension IRA: a straightforward retirement account for the self-employed and small businesses. The owner contributes a percentage of income, with far higher limits than a standard IRA.Shallow risk vs. deep risk — Shallow risk is a price decline that can reverse: violent in the short run, but only a paper loss unless you sell. Deep risk is a permanent loss of capital with no path back. The plan in this book accepts shallow risk and is built to avoid deep risk.Solo 401(k) — A 401(k) for a self-employed person with no employees. It lets you contribute as both employee and employer, reaching much higher limits than an IRA, the go-to account for independent workers who want to save aggressively.Spousal IRA — A rule that lets a working spouse fund an IRA for a non-working or low-earning spouse, so a married couple filing jointly can contribute to two IRAs on a single income.Tax-deferred (Growth that is not taxed year to year, but will be taxed later on withdrawal) the Traditional IRA model. (A Roth, by contrast, is tax-free, not merely tax-deferred.)Taxable account — An ordinary, non-retirement brokerage account. You invest after-tax money; dividends are taxed each year and gains are taxed when you sell. No contribution limits or withdrawal rules, but no tax shelter either.The 4% rule — A rule of thumb that withdrawing about 4% of a portfolio in the first year of retirement (then adjusting for inflation) historically lasted a 30-year retirement. See Section 1.5.Traditional IRA — An IRA funded with pre-tax dollars (a deduction today); it grows untaxed, but every withdrawal in retirement is taxed as ordinary income.W-2 employee — A traditional employee on a company’s payroll, with taxes withheld and reported on a W-2 form. W-2 employees can join their employer’s 401(k).Withdrawal rate — The percentage of a retirement portfolio taken out as income in a given year. A lower rate is safer; a higher rate risks depleting the portfolio.Yield on cost — The annual income an investment produces measured against what you originally paid for it, rather than its current value. A 4% withdrawal from a large balance can be a very high yield on the small sum first contributed.✦Coming next: 1 · The Magic of CompoundingA NOTE FROM THE AUTHORStart Now is free to read and free to share. If it helped 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 →Questions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one. Thanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com

Start NowThis 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 →Thanks for reading Start Now! Subscribe for free to receive new posts and support my work.Greg M. Ostroff, CFAThe Whole Plan - On One PageIf you read nothing else, read this. Everything after it is why it works and why you can trust it.The five movesBUT DO THIS FIRSTIf your job offers a 401(k) with a match, contribute enough to get the full match: that’s free money, and it beats everything below.* 1. Open a Roth IRA. The one retirement account you can open yourself, no employer needed. Fidelity, Vanguard, or Schwab: about 15 minutes, no cost.* 2. Put the money in one low-cost index fund that owns the whole U.S. market.* 3. Contribute what you can every year, ideally the max ($7,500 in 2026), automatically.* 4. Don’t sell. Ignore the headlines. Leave it alone for decades.* 5. Start now. The earliest dollars are worth the most.What it becomesYou’ll put into your Roth IRA about $322,000 of your own money. By age 70, entirely tax-free, that grows to roughly $2.2 million even in the worst 30-year stretch on record, and about $3.7 million in a typical one, an income of $86,000 to $149,000 a year. But the number that really counts is what those dollars are worth in today’s money: about $975,000 to $1.7 million, tax-free.That’s the whole idea. Not a lottery ticket, not a fortune, a private pension you build yourself, tax-free, that makes work a choice instead of a necessity. Add that to your Social Security and you have your freedom.✦BEFORE YOU BEGINHow to Read This BookThis book comes in two halves.First, the Chapters are the book. Ten of them, an hour or two’s read, end to end, depending on how long you linger over the charts and tables. These Chapters hold the entire argument and everything you need in order to act on it: what compounding does, why the Roth beats the alternatives, what a lifetime of maxing one out actually produces, what could go wrong, and the simple routine for starting. If you read only this half, you have not read an abridgement. You have read the book, and you may stop with a clear conscience.* 1. The Magic of Compounding: why growth crawls for two decades, then goes vertical.* 2. Why Hold Investments in a Tax-Advantaged Account: tax-free growth that, for most savers, outdoes both taxable and traditional accounts over a lifetime.* 3. Case Studies: A Lifetime of Maxing Out an IRA. The full range of results, from the 8% floor to the 13.6% ceiling, in both nominal and today’s-dollar (inflation-adjusted) terms.* 4. It Pays to Start Early: the measurable price of every year you delay, and why it’s never too late to start.* 5. A Middle-Income Investor in a High-Tax State: The California Example. The plan run for a typical ~$100K earner, where state tax makes the Roth’s edge larger still.* 6. Why This Falls to You: how retirement landed on the individual in America, and how Social Security and a Roth combine in retirement.* 7. A Family Strategy: Gift-Funding a Young American’s Roth. How to give someone just starting out a head start.* 8. What Could Go Wrong? A clear-eyed look at the risks to this plan.* 9. What Could Go Right? The upside we deliberately left out of every number, so the surprises run in your favor.* 10. Putting It Into Practice: the final chapter turns all of this into one simple routine: open a Roth, fund it as early as you can each year, invest it in a single low-cost broad-market index fund (we offer ideas later in the book), and leave it alone.The Deep Dives are the evidence. Ten of those. Read straight through, they take a little less time than the Chapters do. This is where the work is shown. Every number gets its arithmetic, and every serious objection gets a chapter of its own rather than a sentence. Can a century of market history be trusted at all, the floor as much as the average? Were Japan’s “lost decades” really lost, and who actually lost them? Why did America win, and can it keep winning? And what, if anything, should you actually do about any of it?And one word about the numbers. The large dollar figures throughout are an illustration of a financial principle, not a savings target. You do not have to start young or contribute the maximum, though it helps, and the same forces work on any amount, begun at any age. The figures come from historical market returns. Markets, taxes, and inflation all change, and the next 30 years will not look exactly like the last. But those returns have held remarkably consistently for a very long time, which is a real source of comfort. Read them as a demonstration of why starting early matters, and scale them to your own life.A note about the vocabulary. Where a financial term earns its place, the Key Terms section in the very next post in this series defines it in plain English, so you never have to leave a page confused.One thing worth saying plainly: the Deep Dives assume you have read the Chapters. They are the defense of an argument, not a restatement of it, and they will not make much sense on their own. So read the Chapters first. That is the book. Then, if you want to know whether all of this survives contact with a skeptic, the second half is waiting, best read in order, though each Deep Dive also stands on its own.One thing to carry through all of it: every conclusion here is built on the worst long-term performance the U.S. stock market has delivered on record. The deck is quietly stacked in your favor, because every other outcome on record is better than the one we planned for.You do not need a financial advisor, a windfall, or a big salary. Open an account, contribute what you can, invest it, and leave it alone. Every year you wait is a year of compounding you can never recover.The tools are sitting in front of you.Start Now.A NOTE FROM THE AUTHORStart Now is free to read and free to share. If it helped 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 →Questions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one. Coming next: Key TermsThanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com

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 →Thanks for reading Start Now! Subscribe for free to receive new posts and support my work.Greg M. Ostroff, CFATHE OPENINGHow Anyone Can Build a Tax-Free Pension on an Ordinary SalaryGreg M. Ostroff, CFAYou may be here because you want to be a millionaire, and I’m going to show you how you can be, in today’s spendable dollars and entirely tax-free. It doesn’t take a complicated strategy or a hot tip, a lottery ticket, or outsized risk. What it takes is discipline, patience, a little knowledge I’ll share as we go, and about $20 a day. But nobody actually sets aside $20 a day, so in practice it’s a little under $300 out of each biweekly paycheck. Set it up once, automatically, and you’ll barely notice it’s gone.Perhaps you're a young American just starting out in the workforce, or a few years further along, with your financial footing but no plan yet for retirement. Plenty of your peers are kicking that can down the road, heads down, living for today. This book makes the case against waiting, and an optimistic one: the freedom to retire on your own terms is far more achievable than it looks, and the principles that get you there are few and simple. What you do with that freedom later is your business. My job is just to show you the path. And to get you to start now.If you’re further along, say in your forties or fifties with a 401(k) you set up years ago and quietly left on autopilot, this is a wake-up for you, too. You have less runway, so I won’t pretend the compounding is as dramatic as it is at twenty-five. For you, the bigger lever is often structure, not time: making sure your money sits in the right kind of account, so that when you spend it, more of it is yours and less goes to taxes. It is genuinely never too late. The rules have changed a lot since you signed up, and there’s a good chance you’re leaving real money on the table in accounts you already own. This book will show you where to look.It all comes down to this: start saving early, keep the money invested in a broad-market index fund inside a Roth, and let it grow tax-free. Do that and you build your own pension, and with it your freedom, because in America, no one else will.And you’re not just saving. You’re becoming an owner: a small piece of the world’s best businesses, the giants of today and the fastest-growing innovators shaping tomorrow, all working for you while you sleep.“Retirement” is a terrible word for what this book is about. It sounds like an ending: a beige waiting room at the far end of a long career, if you ever get there at all. Forget that picture. What you’re really building here isn’t a retirement. It’s freedom: to walk away from a job that’s become a grind, to take a risk you couldn’t otherwise afford, or to keep doing what you love because you choose to, not because you have to. For earlier generations, a house did much of this quietly. A mortgage was a savings plan in disguise, and the equity was the nest egg. If that door feels closed at today’s prices, this path does the same job without the down payment.And that’s why this book asks one simple thing of you from the start. It’s written for the person with a self-reliant streak, someone ambitious, who prizes independence and would rather build the tools to run their own life than wait for anyone to hand them one. If that’s you, what follows is about the closest thing there is to an algorithm. Start early, own broadly, keep going, and let time do the work. Do that, and hitting your financial retirement goals stops being an ending. Instead, it becomes the moment you start really living for yourself.Here's some good news, folded inside a sobering statistic. Nearly half of U.S. households have no retirement account at all, according to Federal Reserve data. Not because the tools are exclusive or complicated, but because almost no one is ever taught to use them. What’s missing is rarely access; it’s knowledge. And that gap is the whole opportunity, because it is so fixable. This book exists to close it: to teach you the simplest, most powerful tools for building retirement wealth, and the concrete steps to use them. The Roth IRA and a low-cost index fund are open to virtually every working American; give an ordinary person an understanding of how they work and the discipline to use them, and a secure retirement stops being a distant worry and becomes a realistic goal. This gap is yours to close. You can do this yourself.Who This Book is For The plan works at any income and any age, but the earlier you start, the more it rewards you. So it is aimed first at people with decades still ahead of them to build a saving habit and let it compound. And it applies no matter how you earn a living, whether you’re a corporate employee, an independent contractor, or working for a small business, a public company, or a nonprofit. The tax-advantaged account may change: a Roth IRA, a traditional IRA, a 401(k), a Roth 401(k), a solo 401(k), a 403(b). But the idea behind it never does: own low-cost index funds, start early, and let them compound untaxed. These pages illustrate maxing a Roth IRA each year because that shows the mechanics most clearly, not because it is a requirement. If your job offers a 401(k) with an employer match, that match comes first, free money, before the Roth even begins; the short note right after Chapter 2 spells out the order. And a very high earner trying to replace a large salary will need more than a Roth alone: a 401(k), a backdoor Roth, taxable accounts. “Deep Dive I”, later in the book, walks through each of these scenarios in plain English, so you’ll have a reference when you need it (it’s subtitled “Beyond the Roth IRA: Your Other Options”). And if maxing is out of reach, the same forces work on whatever you can set aside.More precisely, this book is written for readers roughly twenty to forty years old, the years when compounding has decades to work with. If you are younger still, even in your teens, so much the better. Meet these ideas early, know about the new federal accounts if one was opened for you, and open a Roth the first year you have a paycheck. If you are past forty, the book still pays twice. Once in what you can change now, and once in what you can pass to the younger people in your life. And one honest boundary: this is a book about building wealth, the accumulation phase. Spending it down safely, the preservation phase, runs on different rules. Chapter 8 and Deep Dive F introduce them, and a fuller treatment is a book for another day. As you read, you’ll meet ordinary earners from many walks of life, among them Maya, a physical therapist; Carlos, an electrician; and Emma, a working musician. You’ll follow a normal paycheck all the way into a retirement they fund themselves.As you follow this plan, keep three things top of mind:* 1. Time is the most powerful force in investing. Money compounds: growth earns its own growth. Over thirty to forty years that turns steady, ordinary saving into extraordinary sums. Starting early matters more than how much you earn or how clever you are.* 2. Where you hold the money is almost as important as the money itself. Inside a Roth IRA, a lifetime of growth and every dollar you later withdraw are completely tax-free. That shelter is enormously valuable and highly advantageous next to an ordinary taxable account, and even a traditional IRA.* 3. In America, this is your job, but you’re also given the means to do it. The U.S. leaves retirement largely to the individual, yet it taxes you far less than most wealthy countries do, leaving more of your income in your hands. The opportunity is to take that cash flow from the relative tax savings and deliberately convert it into your own private pension. The tool is simple; the only hard parts are starting and staying the course.The headline resultContribute the annual maximum into a Roth IRA (about $7,500 today) every year from age 30 to retirement, roughly $322,000 of total contributions over a career. Then build every conclusion in this book up from the very bottom of the range of historical outcomes: the floor, about 8 percent a year, the worst thirty-year stretch in nearly a century. Even there it grows to about $2.15 million, entirely tax-free. That is enough to support about $86,000 a year at a sustainable 4% withdrawal. Everything above that floor is upside. The full range is in the chapters that follow. The amount you put in is ordinary. What time and tax-free compounding do with it is extraordinary. And because we planned on the floor, nearly every surprise runs in your favor.Put that in perspective. To simply buy $86,000 a year of income at retirement, you’d hand an insurance company well over a million dollars for an annuity, or hold more than two million dollars in dividend stocks, and either way, that income would be taxed. You reach the same $86,000 a year for about $322,000 of contributions, because you started early and let it compound, and every dollar of it is tax-free, with the balance still yours rather than an insurance company’s.✦A NOTE FROM THE AUTHORQuestions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one. Start Now is free to read and free to share. If it helped 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 →Coming next: The Whole Plan: On One PageThanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com

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 →About six weeks ago I got to talking with a thoughtful young man who was doing some contracting work at our house. It was right after SpaceX went public, and the headlines were full of a fresh wave of enormous new fortunes. He said something I haven’t been able to shake, as close as I can remember it: “When I was a kid, everyone talked about wanting to be a millionaire. Then we had billionaires. Now there’s a trillionaire. What’s going on? How am I supposed to build wealth? Where should I begin?” I responded, “Let’s go out for coffee and talk about it.”That evening I started writing this book. Because here's what I wanted him to hear, and what I'll tell you: you can start right now. I've been having some version of that conversation for decades. I've seen it with our own kids, with their friends, with lots of young people just out of school starting their careers, or ones a decade or so later, starting families. Years ago, I even tried to distill what I thought were the secrets to a wealthy life onto a single page, and I meant wealthy in the fullest sense of the word, not just money but meaning, happiness, and purpose. This book is the DNA of that page, narrowed to one piece, then expanded in depth into a simple algorithm for building a secure pension of your own.Thanks for reading Start Now! Subscribe for free to receive new posts and support my work.That afternoon, this young man’s question landed differently. It reminded me of NVIDIA. About ten years ago, when I was starting a virtual reality business, I went to a conference in San Jose, speakers in one hall and a room full of VR demos in another. I went there to learn, to network, and to look for investment opportunities among the demos. I walked that floor thinking like the Wall Street analyst I’d been for decades. Forget the gadgets: who’s the “Intel inside” here, the Levi Strauss of this gold rush? (In the 1990s, "Intel Inside" stickers on nearly every computer taught the world that the real fortune was in the chip inside the machines, not the machines themselves. A century earlier, Levi Strauss got rich selling supplies to the gold miners, profiting from the rush without ever digging for gold.) I had a long talk with a senior executive from NVIDIA and left certain that every idea in that building would run on their chips (as would later happen with crypto and AI, on a far larger scale). Then I went home, ran the numbers through my overly sophisticated investor lens, decided the stock which had just had a big run was overpriced, and placed a careful limit order to buy it lower. It never came down. I cancelled the order. I missed one of the greatest runs in market history.Here’s the thing, though, and it’s the whole reason for this book. It didn’t matter. In my own retirement accounts I had done the boring, disciplined thing this book teaches: I owned the entire U.S. market through a low-cost index fund. So I didn’t need to be right about NVIDIA. When it soared, I already owned it anyway, along with every other winner I never saw coming. The index quietly captured the whole explosion of wealth and creativity of the last decade, without my having to pick a single stock correctly.That’s not luck. It’s by design. A well-respected study found that the entire net gain of the U.S. stock market above Treasury bills, over a century, came from about 4 percent of listed companies. The other 96 percent, taken together, roughly matched T-bills.* Which sounds terrifying until you see the solution: own them all. Buy the whole market, hold it for decades, reinvest the dividends, let compounding double your money again and again, and even the worst 30-year return in the S&P 500’s history builds real wealth. You don’t have to find the next NVIDIA. You just have to own the haystack it’s hiding in, which is how Jack Bogle, who gave ordinary investors the index fund, put it.That alone would be reason enough to become an owner. But there’s a bigger one now: more and more of the world’s wealth flows to the people who own things (companies, technology, whatever AI becomes), and less to those who only earn a wage. That’s really what this young man’s insightful question was about: a way onto the ownership side, which on an ordinary salary is as close as opening a Roth IRA and buying one index fund, all of it tax-free.I wish someone had sat me down at 25 and told me all of this plainly, not just how markets work, but the traps: how much chasing the next hot thing costs you, how much taxes and fees quietly drain away your gains, and how much is won simply by starting early and staying put.I'm writing this book, first, for our children — Zachary, Isabel, Samuel, and Luc — and their friends. A way to continue, in detail, a conversation I've been having with them for decades. And I'm writing it because I see too many bright young people who've decided the game is rigged and there's no point, so they go looking for a shortcut: meme stocks, crypto, prediction markets, the next big IPO. Each one is a lottery ticket dressed up as investing. Others just punt the decision a decade or two down the road. I understand the impulse. But there's an answer, and it isn't a secret, nor is it a gamble. It's patient, disciplined ownership of the whole market inside a tax-advantaged account. It's available to you, today, on an ordinary salary, and I'll show you how.So this book is my coffee with you. The plan is simple. It’s proven. Now it’s up to you.Start now.Northern California, July 15, 2026* Hendrik Bessembinder, "Do Stocks Outperform Treasury Bills?" Journal of Financial Economics (2018), and "One Hundred Years in the U.S. Stock Markets" (2026). The finding is often misquoted as "96% of stocks lose money." It is not. The other 96% collectively matched Treasury bills, their winners offsetting their losers. What the top 4% account for is the market's entire net wealth creation above T-bills. Within that group, just 46 firms produced half of it, from 1926 to 2025.✦How to read thisStart Now is a book, published here one part at a time, free. A short chapter arrives each week. Read them in order or skip around; by the end you’ll have the whole plan, and you could open the account in an afternoon.The whole book, free, is coming. Once the chapters are out, I'll open the complete book to read free online. If you're subscribed, you'll get an email the moment it's ready…. Nothing to buy and nothing to ask for; it just arrives in your inbox.A glossary to keep. Early on you’ll find a short list of the terms you’ll meet in the chapters ahead, from compounding to the Roth IRA to the 4% rule. You don’t need to study it; it’s there to glance at whenever a word comes up that you’d like pinned down.That’s the whole map. Start now.A NOTE FROM THE AUTHORQuestions, comments, or a story of your own? Leave one below, or just reply to this email; I read every one. Start Now is free to read and free to share. If it helped 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 →Coming next: The OpeningThanks for reading Start Now! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit startnowbook.substack.com