Married (or Single) Young Investor Scenario
Traits of the young investor:
- Age 30
- Married (or Single)
- Spends $40,000 per year in expenses/lifestyle
- Full retirement age: 67.
- Live to age 90.
- Doesn’t want to depend on social security for income
For the young investor, time is on your side. It’s called Time Value of Money (TVM). The more time you have for your money to grow, the more you will potentially have later in life, and the less you have to initially save.
You also tend to have less needs since you’re just starting out in your professional career:
- Less need for life insurance
- Building personal property (car, furniture, clothing, electronics, etc.)
- Weekend trips
- Lots of social time and social networking
For a young couple starting out a savings plan for retirement, using the scenario I alluded to earlier, this is what you would need to save per month at the following ages, based on these facts:
- $40,000 per year current lifestyle
- Current retirement savings: $5,000
- Inflation rate of 3%
- 37 years until age 67
- 10% growth rate
As you can see, the longer you wait to start, the more you need to save. All things being equal it may be harder to save $396 per month at age 30, but as salaries increase over your lifetime, $396 begins to become a smaller percentage of your income. Also, as a young investor your lifestyle may not be what you want it to be later in life. To maintain a higher lifestyle in retirement you must save more.
Why start saving for retirement at such an early age? It’s a long time before I retire, if I retire at all. I’d rather spend my money on a house or having fun.
It all goes back to the Time Value of Money (TVM). It’s so much easier to start saving a little now, and if you plan it right you may not have to increase the amount you save per month or year because you’re letting time help you to increase your assets over time. Yes, it may seem a long time off before you “retire” but there will be a point in time that you either don’t want to work or you can’t work, and waiting to save for that eventuality could put you at risk at not having enough to maintain your lifestyle. After all, don’t we all want to be able to worry who to right the check to rather than do I have enough money to write a check?