For a long time I never even gave retirement a second thought. At fifteen my big financial concern centered around stretching my clothing budget as far as possible each month. Let’s face it. Retirement planning for teenagers just isn’t something that many of us think about very much.
When I listened to The Total Money Makeover by Dave Ramsey that changed almost immediately. It was easy for me to connect the wisdom that Dave shares in his book with my own life and I know that I want to be prepared for the future to the best of my ability.
I started planning for my financial future by saving up $1,000.00 in an emergency fund (which I recently spent and you can read about that here) and continues as I save up for contributing towards a car, college expenses and a retirement fund. The following chart is what convinced me to start saving now for retirement:
Yes, you read the chart correctly. If you start saving at 19 and save $2,000.00 a year (about $167 dollars a month) and you do that for 8 years, until you are 26 – you will retire with over 2 million dollars saved. Go Ben! That’s only $16,000.00 total invested! On the other hand, if you are a bonehead like Arthur and you wait until you are 27 to start investing you will get a far different result. If you invest the same amount per year, $2,000.00 and continue to do so until you are 65, you will only have about 1 1/2 million dollars. That’s a total of $80,000.00 invested.
That makes it really simple. Don’t you think? By saving now you will have to invest far less and will get a better result by the time you are 65.
I know that some people criticize this chart because it is based on a 12% rate of return. Those people say that it is impossible to earn such a high rate on any investment. Now I don’t pretend to understand investing but one thing stands out to me. It seems likely to me that both Ben and Arthur are earning basically the same interest on their investment. It is clearly the better choice to invest early in life – whether the interest rate is 5%, 10%, or 12%. Make sense? Even at 6% Ben is going to end up with $1,144,498.00 and Arthur will only have $766,083.00. Still an easy choice isn’t it?
Teens today are more aware than ever about the need to plan for the future. So many of us have seen the devastating effects of a bad economy in our own families or with friends. I will admit that even saving just $167 a month is out of my reach at this time in my life. I just don’t make enough money to save that much. But I’m not going to let that stop me. I can save something every month and my goal is to be saving $200 a month by the time I am 20. Hopefully I will be able to live comfortably in my old age and even be in a position financially to help others and make the world a better place.
If you are a teen have you considered starting a retirement fund? If you are an adult, how early did you start saving?