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  • Eric Garber

Is the Latte Lie Costing You Millions?

Updated: Mar 23, 2023

We’ve all heard the rhetoric, which goes something like this “that daily Starbucks latte is stealing your wealth, cut this frivolous spending and invest more in your retirement account.” On the surface, this sounds like very solid advice. For the right members of the general public, this is actually decent advice. If you have found your way to this article, it’s likely terrible advice.

In this short article, we’ll walk through the numbers to show just how damaging the latte lie can be to higher-earners who let the rhetoric distract them from what matters most.

Let’s begin by putting some numbers behind who I believe the intended audience for the latte advice to be:

  • The median 401K balance for 25-34 year-olds is $14,068

  • The median US salary is $54,132 (as of 2022)

  • The median retirement savings percentage is 7.3% of earned income, or $3,952 annually for a median earner

Now let’s look at the other numbers needed to model the impacts of cutting that daily latte and investing that additional income in a 401K:

  • The average annualized S&P 500 return is 10% (reinvesting dividends)

  • The average 401K plan fees are 1% per year, leaving a net 9% annualized return

  • The most expensive latte on the Starbucks menu is $5.95, we’ll assume tax and tip adds an additional 30%, making this daily habit add up to $2,823 annually

Calculating the resulting 401K balance of this hypothetical median-person carrying on their daily latte habit looks like this*:


401K Balance Today $ 14,068

Balance in 10 years $ 98,744

Balance in 20 years $ 299,204

Balance in 30 years $ 773,765

Even ignoring salary increases, which we’d expect to raise the annual contributions, we can see the strong compounding effects resulting in a total balance of $774K after 30 years of contributing less than $4K/year. Now let’s calculate assuming this person hears the latte advice and takes it to heart**:


401K Balance Today $ 14,068

Balance in 10 years (sans latte) $ 145,499

Balance in 20 years (sans latte) $ 456,643

Balance in 30 years (sans latte) $ 1,193,234

Under these circumstances, foregoing the daily Starbucks latte in favor of investing that money adds up to a nearly $420K higher 401K balance in 30 years. This is a 54% increase. If we take another step using the 4% rule, we put the impact of this frugal choice into context by calculating that it could provide almost $17K/year in additional retirement income.

OK, we’ve just shown that the latte advice just increased this 401K by 54%, so what is the problem? The problem is the distraction this can cause from a bigger driver for those reading this: the returns received on 30 years’ worth of investing. In other words, this is a classic example of focusing on the wrong thing.

In order to illustrate the true impacts of this latte distraction, we need to reorient our numbers for the intended audience of this article:

  • High-earner

  • $500K of invested assets

  • Ability to invest $50K/year

  • Currently receiving 9% annualized return on invested assets

Modeling this out for the same 30-year time frame with no changes results in:


Invested Asset Balance Today $ 500,000

Balance in 10 years $ 2,011,697

Balance in 20 years $ 5,590,432

Balance in 30 years $14,062,600

As you can imagine, the extra $420K on top of $14M by sacrificing 30 years of lattes is a lot less compelling if you are a person who derives significant pleasure from that practice. Again, if we think about this scenario from the context of the 4% rule, this person would have $560K/year in retirement income available without giving up their daily latte, so is 30 years of sacrifice worth increasing their retirement income from $560K/year to $577K/year?

But you may be thinking, in this new scenario, this new hypothetical person may be able to cut some bigger expenses than just that latte. Instead of saving an extra $2,823 annually, maybe they can save five times that, amounting to a total of $14,116. This larger act of frugality does make a more significant impact, amounting to an increase over 30 years of almost $2.1M or 15%.

More extreme frugality just made our hypothetical high-earner an extra $2.1M, so how could this be a problem? Using the 4% rule again for context, this could provide nearly $84K/year of additional retirement income. In order to elucidate the problem, or better stated, the short coming of extreme frugality in this scenario, we need to run one final scenario.

Rather than investing solely in the S&P 500 for a net annualized return of 9%, our hypothetical high-earner diversifies into syndications earning 15% annualized returns. We will assume that the new blended annualized return across their portfolio now increases to 12%:


Invested Asset Balance Today $ 500,000

Balance in 10 years $ 2,535,653

Balance in 20 years $ 8,858,083

Balance in 30 years $28,494,591

Using a different asset allocation to increase returns by only a few percentage points doubled the balance by year 30. WOW!

If that feels too optimistic, note that increasing the returns just a single percent from 9% to 10% amounts to an increase over 30 years of almost $3.7M or 26%. Compare either of these scenarios to the 15% increase that cutting $14K worth of expenses resulted in. And this is why the latte rhetoric can be so dangerous: It can distract you from focusing on returns, while also potentially leading to an unnecessary lower quality of life.

The point of this article is simply to raise a caution flag through all of the noise out there. It is critical to ensure you have the least biased information possible to make the best decisions for your personal situation. Remember the note about the average 401K fees are 1%? Guess who sponsors the media and “gurus” who urge you to invest more into these products. Banks and other investment institutions are big business, which comes with big advertising and lobbying dollars. Always take the time to understand any financial advice or strategies that you are considering implementing, including investing in syndications.

The numbers presented in this article are only meant to be an example, if you’d like to discuss how this concept can apply to your individual situation, please reach out and we’ll gladly walk through a personalized assessment.

One final comment: The point of this article was not to discourage thoughtful frugality in any way. Frugality when applied properly can be a great tool for overall financial health, but it was important to show the relative impacts of reductions in spending compared to changes in returns.

* For simplicity we are not accounting for salary increases or latte cost increases over time

** Again we’ve ignored salary increases over time

If you’d like to discuss this topic or anything related to investing in multifamily syndications, please reach out to or click here to set up a meeting directly.

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