By Mike Rowan
Saving now vs. Saving later.
I speak with numerous young adults in their 20’s who just aren’t too concerned about their 401k, IRA, or investment accounts. In their minds, their retirement is a long, long way away. While that may be true, the ability to retire will be much further away for each passing year that they neglect their 401k and IRA accounts.
Saving today is worth a lot more than saving later, and I can prove it. I’m going to assume you are thinking about saving for retirement at age 65, and that you’ll invest well enough to get a return over the years of 10 percent annually.
FACT: Albert Einstein is widely regarded as one of the brightest people to ever walk the planet.
Albert Einstein once said compounding [interest] is the most powerful force in the universe.
Here is what he means:
If you save $100 when you’re 25, at a growth rate of 10 percent your money will be worth $4,526 when you’re 66. That’s $45.26 for every dollar you save. If you wait until you’re 30, you’ll have $28.10 for every dollar you save. If you wait to age 40, your $1 will grow to only $10.83. Wait until you’re 50? Forget it: $4.18.
Let’s say you get a job and you can invest $4,000 a year. If you start at age 25 and put money in for only 10 years, stopping when you’re 35, at a 10 percent rate of return you’ll have $690,709 when you’re 60. Your out-of-pocket cost: $40,000.
But if you wait until you’re 35 to start putting away that $4,000 a year, you’ll have to keep adding $4,000 every year until you’re 60. Although you will have put in a total of $100,000 instead of $40,000, your account will be worth only $393,388.
Here is a prime example that 20 somethings give for not investing in their 401k or IRA.
I’ve finally got a job, and I work hard. I deserve to have some fun and get a cool car. I don’t see why I should have to deny myself. Next year I’ll get a raise, and then I can start saving for the future.
Carpe diem! Seize the day!!! Just understand that by neglecting your 401k, IRA, and retirement planning, you are setting up yourself for a lifetime of hard work instead of financial independence.
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