Assignment
#12
Time is on your side – But only if
you start early.
As we grow up, graduate from high
school, attend and graduate from college, and begin our careers, we should keep
retirement planning in mind, especially at the beginning of our careers. For most college graduates, retirement is
probably the last thing on their minds as they enter a new world of
opportunities and responsibilities that affect them directly in their everyday
lives.
A spreadsheet can show how beginning
a retirement plan early in a person’s career can have a dramatic effect on their
quality of life.
I will present two scenarios, with
two recent college graduates, both with the ability to contribute the same
amount each year into an interest bearing retirement plan, both with 30 year
careers.
The first graduate immediately begins
to save money in his plan, while the second graduate has fun for a few years,
and waits for 7 years before he begins to contribute to his retirement.
The spreadsheet above shows the results
of both scenarios, with 10% interest.
Notice that the first graduate who began early ends up with more than
twice the amount for retirement as the second graduate. The only difference between the two is the 7
year “head start” that the first graduate had.
So let’s isolate the first graduate’s
first 7 years of contribution and compare to the second graduate.
In this scenario, the first graduate contributes for 7 years only and let’s that contribution grow over the remainder of his career. Notice that he still ends up with more retirement savings than the second graduate. In fact, the second graduate spends the next 23 years saving consistently, but still never catches up to the results of the first graduates 7 years of contribution.
This is an example to show that the best way to prepare for retirement
is to start early. Consistency is good,
getting a good interest rate is great, but starting early is the key. Time is on your side, but only if you start
early.