Want an incentive to start saving for retirement early? How’s this – if you contribute to your retirement plans every year from age 18 to age 30, you never have to save for retirement again!
Suppose that, at age 18, you start working part-time. We’ll say you’re going to college so you can’t put in a lot of hours, but you’re still able to set aside $100 per month. After two years, you double that to $200 per month. (Yeah, that’s a big jump, but we’re just trying to make the math easy; in practice, just increase what you’re saving whenever your income increases).
After you graduate, keep living simply and start putting aside $1000 per month. Yes, that’ll hurt – you won’t be able to live it up the way you’d like – but if you’re used to living frugally as a student, you should be able to do it. Continue to save until you turn 30; the money should be going into either a Roth IRA or a 401(k).
After 12 years, you’ve saved:
$2400 at $100/month
$4800 at $200/month
$96,000 at $1000, month
Pretty impressive, huh? Just by living frugally for a decade, you’ve put aside $103,200! Now let’s assume that you’re earning a reasonable 7.2% return on your investment, which means it doubles every ten years. In this case, your savings have grown to a whopping $144,794! Finally, let’s assume you want to retire at age 65. At age 30, after 12 years of saving, you stop contributing to your retirement account for the rest of your life. Thirty-five years later, your account should be worth just a shade under two million dollars.
Of course, with inflation, two million may or may not be enough to comfortably retire on, but then, nobody says you have to stop saving when you turn 30! Ask yourself, though…is it worth living frugally for a few years while you’re young in order to have two million dollars in savings waiting for you when you retire? If that’s not an inventive to start saving, I don’t know what is!
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