Time is on Your Side

Young professionals who save now enjoy a larger retirement account in the future

Okay, time is not always on your side, but if you are a young, new worker, starting to save for retirement now will almost certainly payoff down the road. Your parents are probably part of the first generation that had to learn to save for themselves. Their parents (your grandparents) likely worked for one company their entire lives and were all but assured of a pension (basically, guaranteed income in retirement). Those days are all but gone.

Now, with few exceptions, it’s up to you to set aside some of your own paycheck. Yes, social security will probably still exist in some form when you retire, but that income likely won’t be enough for you to live like you want to during your retirement years. You need to start getting in the habit of saving ASAP. And, it should happen automatically out of your paycheck and/or your checking account. After a while, it will actually be a good thing when you forget you even set up auto drafts (fancy bank term).

The proof is in the pudding, and by pudding I mean numbers. There are many great examples out there, but I will use the numbers outlined in a popular chart by JP Morgan – it assumes a seven percent annual rate of return:

Susan invests $5,000 annually between the ages of 25 and 35 – In total, she invests $50,000

Bill invests $5,000 annually between the ages of 35 and 65 – In total, he invests $150,000

Chris invests $5,000 annually between the ages of 25 and 65 – In total, he invests $200,000

You might have correctly guessed that Chris ends up with the most money (he did invest the most), but what makes this example so powerful is how much more Chris ends up with. Susan ends with $562,683, Bill ends up with $505,365 and Chris ends up with over $1 million dollars ($1,068,048 to be exact).

Lastly, you should be considering and asking about your company’s (or potential company’s) retirement plan. Frequently, companies will offer some form of matching contribution that will further increase your saving power. If you work for a company that offers this, and you aren’t contributing on your own, then you are quite literally leaving money on the table. And, you might even sound extra-qualified in your next interview if you ask about the company retirement plan. Retirement plans are a valuable benefit that is very much worth weighing along with your salary.

P.S. to young savers: Sorry your parents forwarded this to you. They’re just trying to help!


Nathan Gilbert
About Nathan Gilbert 8 Articles
Nathan Gilbert is an Investment Advisor and Managing Partner with Meridian Financial Partners in Warrenton, Virginia. Meridian is an independent, fee-only investment advisory firm providing financial planning and investment management. Mr. Gilbert was born and raised in the area and currently resides in Haymarket with his wife and three children.

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