One of the most humorous objections I hear from the younger generation, twenty somethings, is that they are too young to worry about saving for retirement. That’s like saying “I’m too fat to go on a diet”, right… Youth is the absolute biggest advantage of saving for retirement. When time is on your side the amounts can be very small to take advantage of time and compounding. Let’s look at an example of compounding interest over decades.
Let’s take an example of two investors at two different ages. “Larry” is a 20 year old investor of $100 per month or $1,200 per year and “Jerry” is a 30 year old investor of $100 per month or $1,200 per year. For example purposes using the Rule of 72 let’s calculate our long term interest rate at 7.2%. This means both men’s money will double every 10 years which is fairly conservative using the Rule of 72. Both men will contribute this set amount every year until their retirement at age 70. “Jerry” will contribute $48,000 over his 40 years and his investment will grow to just under $290,000. However, “Larry” contributed $60,000 and his investment grew to just under$599,000. “Larry’s” advantage of investing 10 years earlier than “Jerry” allows his money to double one more time and he was able to add an additional $12,000. So “Larry” added 25% more money than “Jerry” but his investment grew to 207% more than “Jerry’s” investment. There is no way to make up for the lost time of compounding.
If you are older than 20 years old, you have already wasted time. You must start today setting aside retirement money. First, we must live within our means. Pay off our debts; stop borrowing money for every little thing. Second, we must become habitual savers. Most Americans think that it takes large sums of money to start a retirement fund. This is a myth fabricated by Wall Street. It just simply takes a system of discipline to pay you first. Albert Einstein was quoted as stating “the most powerful force in the universe is compounding interest”. By systematically saving just a few dollars per day and receiving a decent interest rate of return, one can have a decent if not comfortable retirement. To save $100 per month or $25 per week or $3.57 per day or about .60 cents per hour if you work on clock wages takes discipline. Look really hard at where you spend your money every day. Is it Starbucks coffee, Red Bull, pack of cigarettes, 6 pack of beer, eating lunch out? You don’t have to stop these habits but you have to change the way you spend money on them. Make your coffee at home, bring a bag lunch, cut back on smoking, use diet and exercise instead of caffeine drinks. Little changes in behavior can free up that extra $3.57 per day to save for your retirement.
So, the next time you think you are too young to think about retirement, realize it is too late to think about it, just start saving for it. Good luck!
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“Money is not really important, but it is high upon the list with oxygen.”—Zig Ziglar
Image by Stuart Miles at www.freedigitalphotos.net
Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 27 years of experience in sales and marketing in the insurance and beverage industries.
In today’s world, one should start saving for their retirement as soon as they receive an income – just saying.
Franci that is a great idea worth sharing. Thank you!
“You have only two kinds of dollars in your pocketbook. One kind belongs to you and the other belongs to the old person you will be someday. If you spend the old person’s dollars today, then youth is stealing from age… today is stealing from tomorrow and you are wasting away the security and happiness of yourself and your family.”
Soon in the economic world, men & women will be divided into two groups:
Those who have capital and those who don’t;
Those who lend money, and those who must borrow;
Those who earn interest, and those who must pay for it;
Those who have a position of authority, and those who will take orders all their lives:
The first group are the men and women who have set financial goals while the second group are the men and women with no plans of getting ahead.
To which group would you want to belong to?
Financial security is a matter of choice.
As we earn our living, we will either join one of these two groups:
The first group spend first and then save whatever is left while the second group make sure they save part of what they earn and then spend the rest.
Now, which group do you think would most likely have a more secure financial future?
To which group would you like you belong to?
Duke, you always have the most unique ways of explaining your point. Bravo! Thank you for sharing that.
Just helping.
Another ‘BLAST’ from Tim…….Thankyou
Kamal, thank you for your kind encouragement.