Cost of Waiting
10/27/2003
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As many are still struggling in the current economic downturn, saving for the future is hard to do or even just to think about.
But we all must plan for the future – there will be one for everybody and it’s only wise to make yours (and your loved ones) as bright as it could be.
How? Start to save as early as possible.
Why? It could be very costly for those who put it off.
And you don’t have to take my word for it. Just look at some real numbers (Well, it’s still by my calculation – but you can verify them easily).
Assume Amy is 25 years old and starts to put $3,000 into her Roth IRA each year until she reaches age 45. So, that’s $60,000 saved over 20 years. Then, Amy simply lets the money continue to grow inside the Roth until she reaches age 65. Assuming the annual growth rate has been 8%, how much would Amy have by then? The answer: $691,075.
Now, assume Mary also saves $3,000 a year into her Roth IRA each year for 20 years. The only difference is that Mary did not start until she is 45. Still, Mary saved $60,000 as Amy did. With the same growth rate of 8% per year, how much would Mary have when she reaches 65? The answer: $148,269.
The difference: $542,806!
You read it right: both saved exactly the same amount and both had the same growth rate each year. But the “killer” is the delay by Mary.
The “magic”, if there is one, is the time value of money. And that magic works exactly the same way for everyone’s money: Amy’s, Mary’s, John’s and yours.
The lesson is clear and loud: Start today (if you have not done so). It’s never too early.
Now, here are more of our “magic numbers”.
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