VOL. 129 | NO. 65 | Thursday, April 3, 2014
Rays of Wisdom
Dana and Ray Brandon
Invest Early For the Best Retirement
By Ray and Dana Brandon
Ray’s Take The very best friend a young investor has is time. Someone who puts $4,000 per year into retirement accounts starting at age 22 could have $1 million by age 62, assuming an 8 percent average return. Waiting 10 years to start contributing means you would need to put in $8,800 per year to get the same results.
According to an Employee Benefit Research Institute (EBRI) Retirement Confidence Survey in 2013, adults age 25 to 34 reported total savings and investments of less than $10,000. The same survey shows that while 42 percent of the same age group reported workplace retirement savings plans offered, only 32 percent of that number were making contributions.
When you are young and just starting out, you are focusing on getting your career started, getting a place of your own, possibly getting married. Your income starts lower, and you may have accumulated some debt – education and other.
The very word “retirement” has a negative ring to it at this phase, which is part of the reason most ignore it. But a relatively small commitment at this point can have huge impact on the future. Every year you kick the can down the road increases the headwind you’ll face later on.
If you have the option to contribute to a workplace 401(k), contribute everything you can right out of the gate, not just enough to garner the company’s matching dollars. If you can, invest in a deductible IRA as well and max it out. Then start saving something every month on a non-qualified basis – pay yourself first (PYF). If you’re married and have two incomes, live on one and save all of the other. One day you may have to or choose to so that one of you can be a stay-at-home parent.
Small steps now lead to big rewards later.
Dana’s Take Retirement funding today is a do-it-yourself project. Unfortunately, unlike home DIY projects, it will be decades before you see the fruits of your efforts. Your monthly 401(k) contributions exist on paper, but otherwise are kind of invisible.
If you get a bonus, it’s easy to get excited about funding a ski boat or a deck. Saving for retirement just isn’t hot. But, just like high school nerds who become millionaires – as their money grows, they get more attractive. As your retirement fund grows, you will grow to love it. I bet you will even want to send it more money every month. And unlike that ski boat, it will be in better shape than ever when you retire.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.