Myth: I can save for retirement when my income increases. There’s always more time to invest.
Truth: Time is running out and waiting to invest guarantees you an undignified retirement.
Let’s use the example of brothers Ben and Arthur. Ben decides to start investing just $2,000 per year when he graduates high school. That’s only $166.67 per month. He does this from age 19 to 26 – only eight years for a total of $16,000 invested, and then he leaves it alone.
Arthur decides instead to buy a car and a house and live a little before he gets serious about saving for retirement. He waits until age 27 (the year after Ben stopped investing) and then invests exactly the same amount per year as Ben did. The difference is Arthur invests his $2,000 every year from age 27 to 65 – a $78,000 total investment.
Age | Ben Invests | Balance | Arthur Invests | Balance |
19 | $2,000 | $2,240 | $0 | $0 |
20 | $2,000 | $4,749 | $0 | $0 |
21 | $2,000 | $7,559 | $0 | $0 |
22 | $2,000 | $10,706 | $0 | $0 |
23 | $2,000 | $14,230 | $0 | $0 |
24 | $2,000 | $18,178 | $0 | $0 |
25 | $2,000 | $22,599 | $0 | $0 |
26 | $2,000 | $27,551 | $0 | $0 |
27 | $0 | $30,857 | $2,000 | $2,240 |
28 | $0 | $34,560 | $2,000 | $4,749 |
. | . | . | . | . |
. | . | . | . | . |
. | . | . | . | . |
58 | $0 | $1,035,426 | $2,000 | $682,859 |
59 | $0 | $1,159,677 | $2,000 | $767,042 |
60 | $0 | $1,298,838 | $2,000 | $861,327 |
61 | $0 | $1,454,699 | $2,000 | $966,926 |
62 | $0 | $1,629,263 | $2,000 | $1,085,197 |
63 | $0 | $1,824,774 | $2,000 | $1,217,661 |
64 | $0 | $2,043,747 | $2,000 | $1,366,020 |
65 | $0 | $2,288,997 | $2,000 | $1,532,183 |
Both brothers retired at age 65 with a good nest egg, but look at the difference. Ben invested $16,000 and retired with $2.2 million. Arthur invested $78,000 and only had $1.5 million. He ended up behind his brother by $756,814 even though he invested $62,000 more than Ben did!
So if you think you have plenty of time to get with it, think again. Time is on your side if you use it to invest. But if you wait to invest, time is definitely NOT on your side and making catch up contributions late in life is often a case of too little, too late.