Share this one with your kids: Starting a retirement account just a year early can add up when it’s time to retire. Like $20,000 more.
That common sense advice comes from David Blanchett, head of retirement research at institutional asset manager QMA, and pretty much mirrors what parents everywhere have been telling their children for pretty much forever. It’s not timing the market the matters, but time in the market.
By the numbers: According to Blanchett, someone who starts saving for retirement at 25, putting away $5,000 for year, they’re end up at 65 with a retirement account worth about $475,000. Not too bad. But if they had waited until they were 26 they’d end up with just $452,000.
Doesn’t sound like much of a difference? Keep in mind, these numbers are just examples. Consider if you were saving $10,000 per year. Then your shortfall would be, according to Blanchett’s data, about $46,000. That’s a middle class salary where I live.
Of what if you saved the 15% of your income that experts recommend for a sound retirement? Just do the math. Let’s say that figure is $20,000 per year; then we’re talking about $92,000 worth of difference in just one year.
You know where this is going.
Quote: “Start with 50 cents. Start with $1. Create the habit and the discipline to start small and then that will snowball.” — says Rob Williams, vice president of financial planning and retirement income at Charles Schwab.
Resources: Financial Planning for Retirement: What You Need to Know
