Contributors over at MarketWatch must be avid readers of the Toledo Free Press! Perhaps retirement funding has just become a popular topic, however I like to live in a world where the former holds true. On August 13th, Paul Merriman wrote “Make Your Kid Rich for $1 a Day” on MarketWatch.com, a piece which reflects the sentiment that we discussed back in May in my piece “Funding Your Retirement.” Financial professionals globally are realizing the importance of investors seeking market exposure at a younger age, but few take the time to run the numbers.
In Merriman’s article, he runs the numbers assuming a $1 a day contribution to your child’s investment account. $1 a day for one year is $365 per year, and assuming such contributions are made until the child reaches the age of 18, and the assets are invested and earn 12% per year, the child will have $20,348 when they turn 18. Merriman also concludes that the same value could be reached if a onetime investment of $2,700 was made at the child’s birth. Continuing on, if the child were to use the $20,348 to fund an IRA (maxing out her contribution at $5,500 per year) and continued to earn 12%, without ever contributing a new dollar, they would have over $4 million before their 67th birthday. He then goes on to assume a few lifestyle choices and how much the now-adult would be able to live off of, leave to heirs, etc.
Paul Merriman is right on point; investing at a young age is the essential key to a happy retirement. Professionals confirm that investing early is equally as important as a rate of return. Bull markets come and go, but we can never get back the lost time that we could have been contributing towards our retirement; those years that our investments could have been compounding are gone forever.
We cannot stress enough the importance of realizing the impact that time can have on your retirement and why starting early is essential to carefree Golden Years. Go online or download an interest calculator app and just play with the numbers for a while, and see just how much you can reward your future self with a little contribution today. The worst thing that you can do for yourself is try to play catchup late in your work career. Let’s assume that after you were hired for your first job that you invested $2,000 per year for the next 40 years of your career at a rate of 12%; you would have $1.7 million by the time you retired. Conversely, if you waited and tried to play catch up by investing $10,000 for the last 15 years of your career at 12%, you would have a mere $417,000 when you retired.
The French poet Jean de La Fontaine once said that “Patience and time do more than strength or passion.” While he certainly was not referring to investment theory, the principal holds true; time is the one thing that we can never recreate, and once it is gone it is gone forever. Don’t let your time go to waste and take the proper steps today to benefit your future self and your future heirs.