How coffee is burning into your retirement savings

How coffee is burning into your retirement savings

Welcome to the “Everyday Economics” series.

Part of my goal for this site is to put numbers around everyday situations to provide context from a financial perspective. In this segment, I’m going to tackle coffee!

Oh did I ever survive without you? On the rare occasion that I learn a friend doesn’t drink coffee I usually assume there’s something terribly wrong with them. Or that they must have been picked on by baristas in their childhood.

Anyway, I wasn’t always this way. I didn’t even start drinking coffee until junior year of college! It's still a mystery to me how I made it through my first two years without it...

Fast forward a few years to when I was an investment banking analyst in a large global bank. Long all-nighters in the office were painfully common. On a typical day, I went to Starbucks (or my local favorite, Gregory’s) 2-3 times per day. Which often included a 9pm run before the coffee shop closed. It was a necessity.

Putting aside the (arguably) dangerously high level of caffeine I consumed, I became curious about how much money I spent on my coffee habit over the course of a year.

Before I reveal my numbers, let's look at some stats. According to the Acorns Money Matters Report published in January, the average American spends a whopping $1,100 per year on coffee. To make matters worse, over a third of the survey's respondents spent more on coffee than they invested in 2017!

Clearly many of us love our coffee. Although not as much as Scandinavians!

For your viewing pleasure, I went through my coffee budget for the past few years. It appears that my habit peaked in 2016 when I spent $1,043 (I can't believe it's slightly under average?)!

I'll be right back. My kettle is calling to me.

Economics of coffee spending: the lifetime value

Now that we've seen some basic figures, let's analyze the lifetime value of a coffee habit.

I’m going to present three scenarios of spending, with the goal of understanding how much coffee consumption can impact your retirement nest egg. Each of these scenarios includes 2 cups of coffee per day, some from Starbucks, some brewed at home.

  1. Person 1 (Addicted to SBUX): Starbucks (black coffee) twice a day
    • Upfront spend for coffee machine: $0
    • Daily spend: $3 per cup, total of $6 per day
  2. Person 2 (Efficient Spender): one cup of Starbucks per day, one cup of home-brewed coffee per day
    • Upfront spend for coffee machine: $100, plus a replacement machine every 5 years
    • Daily spend: $3 per day at Starbucks, 50 cents per day for morning coffee, total of $3.50 per day
  3. Person 3 (Home Coffee Pro): two cups of home-brewed coffee per day
    • Upfront spend for coffee machine: $100, plus a replacement machine every 5 years
    • Daily spend: 50 cents per cup, total of $1 per day

All scenarios assume the following:

  • 2% annual inflation
  • 7% opportunity cost on all spending
  • 25 days per month (a few no-coffee-days from time to time)
  • 30-year time horizon
  • Total value represents the value of spending plus opportunity cost over time

Let’s take a look at the results. All of these costs are representative of actual cost incurred, plus opportunity cost over the 30-year time horizon.

  • Person 1: the person who is “Addicted to SBUX” could cost themselves over $226k in their retirement nest egg. Wow.
  • Person 2: the person who gets one cup of SBUX per day and makes one cup at home could cost themselves over $135k in their retirement nest egg.
  • Person 3: the home coffee fanatic who brews two cups per day could cost themselves over $40k in their retirement nest egg.

Now, let's take a look at this in another way. Stay with me on this next one.

The goal of the table below is to show how much better or worse off your retirement nest egg could be under the various scenarios.

Relative savings / (cost) under various scenarios

The total value represents how much more / (less) you could have in retirement, relative to the other scenarios.


Take one example. (Starting from the top side) If you are a “Crazy Person” (by my definition, anyway) who doesn’t drink any coffee, your retirement savings could be better off by over $226k relative to someone who buys 2 cups of SBUX every day.

Of course, I haven’t taken into account the productivity losses this crazy person might have! I know there’s no way I would make it through a full day of work with no coffee.

Here are a few more examples:

  • If you are addicted to SBUX (two cups per day), you could be costing yourself over $186k relative to someone who makes all of their coffee at home!
  • If you are a home coffee fanatic, you could have over $94k more in retirement than someone who goes to SBUX once per day!

I won’t go through all of the variations, but I hope you like the table. If you want to mess with the numbers for yourself, let me know and I’ll happily send you the spreadsheet.

Final thoughts

So what’s the takeaway here? We should all give up coffee forever, right? Ehhh, no…I don’t think I could get anything done without my daily two cups.

Of course, just like most things, the key is to find a balance. It’s not always practical to make coffee at home. And that’s okay. But stopping by your nearest SBUX doesn’t need to be an everyday activity either.

The final message I want to leave is this: don’t be a mindless spender. It’s so easy to overlook small purchases like coffee. But when we add up all of that joe, the results can be dramatic!

  • How many cups of coffee do you have per day? (I really hope I’m not the only one who is hopelessly dependent!)

  • How often do you buy coffee versus make coffee at home?

  • To non-coffee drinkers: what are your tricks for staying alert and productive?