The real math of coffee and your retirement

And how to get the most out of your cup.

  • By Alessandra Malito,
  • MarketWatch
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Coffee lovers, rejoice. You can have your latte and a prosperous retirement, too.

Many mainstream financial experts have used coffee as a prime example of wasting money, saying your morning coffee ritual from Starbucks (SBUX) or a local cafe are killing your chances of properly retiring. Suze Orman, author of numerous personal finance books and a television host, said a daily coffee habit is essentially like “peeing $1 million down the drain.”

Takeout coffee is a want, not a need, she said. “I wouldn’t buy a cup of coffee anywhere, ever — and I can afford it — because I would not insult myself by wasting money that way,” she told CNBC.

But not all financial advisers agree with her math. Orman equated a daily coffee habit to $1 million in retirement, but that would require putting away $100 in a Roth individual retirement account every month for 40 years and earning a 12% rate of return (a bit hopeful, some advisers said).

Douglas Boneparth, a financial adviser and president of Bone Fide Wealth in New York, as well as an avid coffee drinker, created an online calculator to crunch the numbers of one’s coffee habits. The argument against coffee makes little sense and is also “disingenuous,” he said. “There’s a better way to communicate controlling one’s spending.”

His calculator targets how much someone would save if they were to switch to brewing their own coffee, but it also highlights how misguided some of these sensational figures (like $1 million over 40 years) can be. The calculator incorporates how much a cup of coffee or specialty drink (like a latte) is, how often someone drinks these beverages and assumptions about investment returns and inflation.

A coffee drinker would save $150,600 over 40 years if they were to brew their own coffee, according to the calculator’s default settings, which include a 12-ounce bag of coffee for $20 and a habit of 14 cups of coffee a week at $3 a cup. If that person drank 14 cups of coffee a week, but half were lattes for $6 each, that person would save a total of $282,500 over the next four decades — still far from the $1 million Orman suggests. Boneparth uses a conservative 5% rate of return, as well as 2% inflation, and cautions others to do the same or similar.

Other authors have zeroed-in on coffee as well. A new fiction book called “The Latte Factor” by David Bach and co-author John David Mann follows the story of a young woman with student loan debt and a dream job with a non-dream salary. She befriends a barista who says she could make small changes to her daily routine to save more, including buying fewer lattes and investing that money instead, such as in the coffee company she seems to love so much.

Many people have taken issue with the notion that coffee is the bane of retirement savers. Yes, small purchases do add up, but a daily or weekly latte may give more to consumers than just an energy kick. For Erin Lowry, author of “Broke Millennial Takes on Investing,” going out for coffee allows her to socialize and leave her home, where she works. She even includes a line item in her budget for specialty coffee.

Lowry suggests Americans comb through their latest purchases, and find the habitual purchases they may not value. Look for unused subscriptions to movie channels or happy hours that didn’t actually make you happy. Reducing larger expenses will do more for a budget and retirement account, including downsizing a home to save on rent or a mortgage, than a few cups of coffee every week.

And coffee drinkers may also consider striking a balance between to-go coffee and drinks they brew at home. Boneparth treats his coffee drinking like a hobby, and uses a simple pour-over method. (He even logs which brands and types of beans he uses on his website).

The pour-over method is one of the cheapest and best ways to make coffee, said Michael Butterworth, a coffee educator and editor of The Coffee Compass, a website dedicated to craft coffee. Pour-over coffee makers, which use ground coffee, range in price, depending on how many cups it brews and brand, but typically cost between $10 and $45. You can also get a quality bag of specialty coffee for $20, Boneparth said, but popular brands also sell their grounds for $5 to $10. Some Americans may opt for single pod brewers, like Keurig machines and Nespressos, for convenience and cost-per-pod, but they can be cheaper grade coffee sold at a premium and not the best option for someone on a budget, Butterworth said.

The ways to brew coffee seem limitless. Aside from pour-over and single-serve pods, there are French presses, drip coffee (like you’d find at a diner) and percolators. People can invest in espresso machines, or use old-fashioned Italian moka pots, which can serve one to 18 cups.

Still, those who want to go to their local coffee shops before or after work shouldn’t feel ashamed to do so, Butterworth said.

“Certainly consumers can save a lot of money by brewing coffee at home, but I think coffee shops create value for their regular customers in other ways,” including as a place to interact with others, or a quiet spot to study or work away from the home or office. “It’s hard to put a price tag on those intangible elements.”

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