One of the most common things that I hear as an advisor from someone is that they will start saving for their future at some later point in time. And although it is never too late to start saving, the sooner you start the better off you will be. But what most people don’t really understand is how much better off you may be if you start sooner rather than later. Let’s take a look at an example….
Let’s say you are 40 years old and haven’t started saving in an IRA for your retirement yet. If you start now and put the maximum $6,000 a year (or $500 a month) into your IRA each year until you retire at age 65, you would have about $438K saved assuming you averaged 8% on your investments along the way.
But what if you decide to wait until next year to start investing in your IRA? Maybe you have some credit card or other debt you want to get paid off first, so you put that $6K this year towards that instead?
By starting just one year later, at age 41 you will only reach about $400K in savings by the time you are 65, thus, the one year of waiting would cost you about $38K in savings.
The cost if you wait two years to start saving? $73K
And if you wait 5 years until you are 45 to start your IRA? You would only eventually reach $275K in savings and by not investing that $30K ($6K a year) over those 5 years you waited, you would have actually cost yourself a little over $164K.
Now paying off debt, especially very high interest rate debt, can be a very smart move and should definitely be a priority. One also needs to fully understand that the real cost of that debt may also include the future lost value in their retirement account due to not saving that money earlier in life.
Blindly following the common advice to pay off debt first before you save anything can sometimes not be the best mathematical plan to maximize your financial future. If you are interested in learning more or building an investment plan tailored specifically to you from a fiduciary financial advisor who cares, then give me a call for a friendly chat.