Money Rule #25: Doing nothing can be very expensive.

Click to access an interactive “Cost of Waiting” graph on Wells Fargo’s Financial Advisor Insights eMagazine.

Click to access an interactive “Cost of Waiting” graph on Wells Fargo’s Financial Advisor Insights eMagazine.

That’s true in many, many instances. Think of buying a gift for a birthday a week from now. You put it off, then put it off some more. All of a sudden that birthday is tomorrow. You no longer have time to shop around for the best price and you have to shell out for overnight mail. But that’s nothing compared with the cost of waiting to start saving for your retirement.

Retirement sits on the shoulders of today’s adults like no previous generation. Our grandparents and some of our parents not only had pensions, but full confidence that Social Security would be enough of a supplement to meet their needs. We have IRAs, 401(k)’s, SEP’s and Keogh’s that we have to fund ourselves. Social Security will likely be around, but how much of our living expenses it will cover is much more of an open question. And then there’s healthcare, the wildcard in the equation. According to Fidelity it’s estimated to add another $220,000 in expenses to the bottom line of a 65-year-old couple through their retirements.

That’s the macro explanation about why it’s better to start saving today rather than tomorrow. But inspiration often comes from going micro – looking at the details of what you’ll have if you get into the retirement saving game sooner rather than later. Take a look at this interactive graphic created by Wells Fargo.

If you start at age 20 and save $83 a month or $1000 a year, by the time you’re 60 you’ll have more than $300,000 (this assumes an 8% annual gain). That’s a nice sum of money – and a very different scenario than one facing the saver who didn’t start until age 30 (she’ll have just $133,000), 40 ($54,000) or 50 ($18,000 – yikes!)

Of course, the more you can save each month, the better off you’re likely to be. If you can save $5,000 a year (or $417 a month) from the time you’re 20, you’re looking at $1.4 million at age 60. Look at the difference, though, if you it for just 10 years less. At 30 years, your total drops to less than half that amount — $612,000. And it’s a steep slope from there. With 20 years of saving you have just $247,000; and with 10, $78,000.

One thing to remember – it’s more important to start, than to start with a particularly high (or particularly round) number. Few people can start saving thousands a year in their 20s; many more can amp up their savings as their earnings increase in their 30s, 50s and 50s. So, here’s one more example to show you the power of just doing something when you’re young.

Say you start at age 20 and save $500 a year for the first 5 years. At age 25, you bump up your contribution to 1000 for another 5 years. At 30, you go to $1,500 and so on, bumping up your contribution by $500 every 5 years. By the time you’re 60, you’ll have put away almost $400,000. And if you can keep saving for another 5 years beyond that at the same rate, you’ll have closer to $600,000.

So, start today. Make your contributions automatically so that you don’t miss a month unintentionally. Put them in tax-deferred accounts where they can grow as quickly as possible. And visit your accounts once a month to see how well you’re doing. Trust me. The progress you’re making will inspire you to do more.

Jean Chatzky

About Jean Chatzky

Jean Chatzky, the financial editor for NBC’s TODAY show, is an award-winning personal finance journalist, AARP’s personal finance ambassador, and a contributing editor for Fortune magazine. Jean is a best-selling author; her eighth and most recent book is Money Rules: The Simple Path to Lifelong Security. She believes knowing how to manage our money is one of the most important life skills for people at every age and has made it her mission to help simplify money matters, increasing financial literacy both now and for the future. In April 2013 Jean launched Jean Chatzky's Money School , a series of college-style, interactive online personal finance courses that give men and women across the country the opportunity to learn from and interact directly with her. Jean lives with her family in Westchester County, New York.
This entry was posted in Financial info, Retirement planning and tagged , , , , , , , , , . Bookmark the permalink.

2 Responses to Money Rule #25: Doing nothing can be very expensive.

  1. Kenny says:

    Interesting insight!

  2. Andrea says:

    I Very Well Agree w/ Kenny!:)

Beyond Today Blog

Leave a comment

Your email address will not be published.

Your questions and comments really matter to us! We're glad you want to join the conversation and connect with other readers. All we ask is that you keep some simple guidelines in mind:

  • Stay on-topic. Only comments that are related to the subject of the blog entry will be posted.
  • Be respectful. It's okay if you disagree with a post or comment, but please, no personal attacks or offensive language.
  • Maintain your privacy and confidentiality.Please do not provide any of your specific account details or other personal information! If you have immediate service needs, please contact your bank representative or Customer Service.
  • Wells Fargo team members: In the interest of full disclosure, if you are a current employee of or are associated with Wells Fargo, please make note of your affiliation.