‘I was honestly shocked’: 28-year-old reacts to retirement forecast showing how much she could accumulate

(CNN) — Food stamp policy analyst Abbey Graf had an emotional reaction after reviewing a wealth-management forecast prepared by certified financial planner Stacy Francis, based on Abbey’s income, spending and savings.

“I think I was in shock. I knew I was in a good place. But I don’t think I was fully aware of how much I would have at retirement if I keep pace (with my savings),” Abbey said.

The outlook suggested she could potentially have as much as $4 million if she retires at 65, or more than $2.5 million if she opts for early retirement at 57.

At 28, Abbey has built up substantial savings for someone with her age and her $74,360 income. Aside from the $1,246 still left on her federal student loan, she has no debt. She could pay it off easily, but she worried that doing so might hurt her credit score because credit bureaus reward responsible debt management.

Still, financial anxiety has made it hard for her to recognize how strong her foundation really is. It has also kept her from spending on things she enjoys now, including travel and new hobbies.

Despite her healthy cash flow and disciplined saving, “emotionally, Abbey still worried she was ‘behind,’” Stacy said in an email. “We are seeing this disconnect constantly, especially among younger women. Many are doing quite well financially on paper, but because of social media comparisons, really scary economic headlines, and rising costs of everyday items, they still feel financially insecure.”

Stacy modeled two possibilities: one in which Abbey keeps renting her below-market apartment for $1,350 a month, with rent rising over time with inflation; and another in which she buys a $400,000 home and later sells it in 2038.

Under those assumptions, Stacy said Abbey would likely come out ahead by continuing to rent. If she retired at 65, her portfolio could be worth $3.976 million, or roughly $740,000 more than in the home-buying scenario.

Those figures assume average annual inflation of 3.1%, including a 4.5% rate for medical care.

Because Abbey is anxious about money, Stacy used a cautious assumption that her investments would return only 5% a year, well below the 10.12% average annual return of a moderate-risk portfolio made up of 60% large-cap U.S. stocks and 40% U.S. bonds, according to Morningstar data.

The projections also do not assume Abbey, who is currently a contractor, will ever work for an employer that matches retirement contributions. If she does, her savings would only grow further.

Stacy said the analysis “completely changed her perception of what was possible.” Even with conservative assumptions, the numbers showed that Abbey could retire many years earlier than she had expected.

As a result, Abbey now feels more comfortable taking a vacation and trying hobbies she had avoided before because of the cost.

“I think I will slowly ramp up to not shock the system,” she said. “Maybe I should take a pottery class.”

Looking ahead, Stacy advised Abbey to take four steps:

• Keep $60,000 in emergency savings, slightly more than her $46,018 in yearly expenses.
• Maximize 401(k) contributions if she ever takes a job with a workplace plan and employer match.
• Keep contributing to her Roth IRA and HSA.
• Gradually move extra cash into long-term investments for stronger growth potential.