In “7 Costly Retirement Savings Mistakes to Avoid,” I had mentioned that waiting too long is the number one mistake. I am afraid I didn’t demonstrate it well, so here is a different look at the concept.
Assume that in each scenario, the investment grows at 10% per year (Based on historical data, investment gain averaging 10% per year is feasible).
- Investor A started saving and investing $4,000 per year when he was 25 years old. By the time he was 35 years old, he had already saved $82,000. When he is ready to retire at the age of 65, he will have accumulated $2.1 millions dollars.
- Investor B didn’t start early. When he saw that investor A had accumulated $82,000, he wanted the same for himself. At the age of 35, he started savings and investing $4,000 per year just like his friend. When he turns 65 years old, he will only have $800,000. In essence, a decade cost him over $1.3 million dollars.
- Investor C also wants in after he witnessed his friend success, but he wants to have as much as investor A when he retires. To catch up, he has to invest $10,700 per year just to keep up. In short, a decade cost him $6,700 per year.
Here’s the same scenarios in graphical format:
Now, do you believe time is money?
More about starting early:
- The one thing I would teach a recent college grad at ChristianPF
- Ben Stein: 3 Biggest Retirement Mistakes at Consumerism Commentary
- Six Key Principles of Saving for Retirement at My Money Blog
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.