The 411 on your 401(k) or IRA
Has all this talk about vacations got you thinking about the permanent vacation? (Retirement. I mean retirement. Not death.) Then it’s your lucky day, because I have all kinds of things to say about retirement!
Actually, no I don’t. To be perfectly honest, there’s nothing new to say about saving for retirement. It’s genuinely astonishing to me how many people cannot get their shit together on this score, given how much excellent advice is available on the topic. What’s the deal, guys?
I’ve already demonstrated (over and over again) how easy it can be to put away a little bit of money every day or every week in service to a larger goal—so assuming you have some change to spare, it shouldn’t be the spare change that’s holding you back.
I’m guessing it’s the time frame.
Ironically, retirement—although it is probably the most important thing you’ll ever save for—is a big, amorphous goal that feels less important the younger you are and then really fucking important when you’re too old to do anything about it. Alvin (the chipmunk) has an excuse—he hasn’t aged a day in fifty-five years. Alvins (the people) need to get their shit together and start working on this. No excuses.
If the distance between today and retirement seems too vast, and therefore the idea of saving for your twilight years lacks urgency, please consult the following charts to get an idea of what that time looks like in dollars and cents. Compound interest—essentially, free money—earns you interest on your initial investment PLUS interest on the accumulated value of your initial-investment-plus-interest, over and over, until you take it out of the market. It is a truly miraculous feat of arithmetic.
As I said, this isn’t “new” information, but maybe my zesty presentation will strike a chord. I’ll show you your own investment, the amount you end up with at age sixty-five, and the return on investment, aka the amount of money that just materializes in your account without you having to lift a finger.
You can also think of it as the amount that you’re cheating your old, tired self out of if you don’t start saving for retirement today.*
Check it out:
At $1/day (the price of a lottery ticket):
A 55-year-old would contribute $3,650 and wind up with $5,398—a return of $1,748. Not too shabby, but it would have been nice to start sooner.
A 40-year-old would put $9,125 into his IRA and have $24,707 in the account by the age of 65. That’s a return of $15,582. I don’t know about you, but I’m 38 and a $15,000 bonus for doing nothing sounds pretty sweet to me.
A 25-year-old would put $14,600 into her IRA and have $77,982 in the account by the age of 65. She’s the big winner with an extra $63,382 to show for her timely commitment to retirement savings. SIXTY-THREE THOUSAND DOLLARS.
Now look what happens if you invest that $3.57* per day that we found back here:
At $3.57/day (the price of a collapsible shot glass key chain):
A 55-year-old would contribute $13,030 and wind up with $19,271—a return of $6,241. That could buy a lot of early-bird dinners.
A 40-year-old would put $32,575 into his IRA and have $88,204 in the account by the age of 65—a return of $55,629. Now we’re talkin’.
A 25-year-old would put $52,120 into her IRA and have $278,393 in the account by the age of 65—a return of $226,273. I’m sensing a theme here.
Finally, what happens if you go for the big bucks?
At $5/day (because it never hurts to round up):
A 55-year-old would contribute $18,250 and wind up with $26,990—a return of $8,740.
A 40-year-old would put $45,625 into his IRA and have $123,537 in the account by the age of 65—a return of $77,912, which, by the way, is more free money over the course of 25 years than that dollar-a-day 25-year-old made in 40.
A 25-year-old would put $73,000 into her IRA and have $389,912 in the account by the age of 65. That means she’s contributing almost as much as she wound up with total on the dollar-a-day plan, and getting a whopping $316,912 in return. That is a certifiable shitload of dough.
I think I’ve made my point. Go ahead, I can wait while you set up your IRA.