Broker Check


March 04, 2020

Do you think you might be spending on average as much as $13 a day on impulse items? Maybe a quick morning stop for your favorite caffeinated beverage? A blueberry muffin to-go? What about the occasional ‘must-have’ online purchase? For your evening entertainment a $4 movie download? It adds-up!

Be honest, is it possible that on average you spend $13 a day on things like this? It might surprise you that instead if you contributed that money to an Individual Retirement Account (IRA) it could completely change what will likely be a 20 to 30-year period of your life, your retirement!

Think about this…$13 a day amounts to $4,745 a year. If you’re in a 22% tax bracket (married filing jointly $80k - $171k or single $40k to $86k) that means you must earn roughly $6,000 before-tax to have $4,745 after-tax. By investing that money in an IRA you can delay the federal tax until when your tax bracket is much lower in retirement. In the meantime, you can invest what the government would have otherwise taken from you in federal tax.

You’re allowed to make IRA contributions up to $6,000 per year or if you’re 50 or older $7,000. What kind of a difference can this make?

Well, if a 45-year old individual contributes $6,000 annually for 20-years and earns a reasonably achievable average rate of return of 6% he will have approximately $233,000 at 65. That is not pocket-change! $233,000 will be far more meaningful than the $5 cups of coffee throughout a working career.

Even better, if you take the same scenario but start at 35 years of age the nest egg at 65 would be over $500,000. How about one more, same scenario, but instead the individual is 25. Expect a nest-egg of $981,000!

If that motivates you don’t procrastinate! Delaying saving by just one year can have a significant impact on what you will have when you retire. Again, using the same assumptions in our example, if someone begins to save at 45 we know they will have $233,000, but if they don’t start until 46 they will have $214,000 at 65, a difference of $19,000. Further, what if the 25-year old decides to delay until 26, then instead of $981,000 that millennial will have $919,000 at 65. One extra year of saving $6,000 with compounded growth for 40-years makes a difference of $62,000!

Some say they can’t afford to save. The reality is you can’t afford not to save! In most instances $13 a day is within your discretionary budget. The choice is yours. The value of delayed gratification is significant.

For millennials I have some bad news and some good news. The bad news is the retirement benefits offered by the government (Social Security & Medicare) for your generation will most likely not be what your parents and grandparents enjoyed. The problem is we’re all living to more advanced ages than what average life expectancy was when these government programs were created. Therefore, we simply won’t have enough workers paying FICA tax to support the same level of benefits for a relatively larger retirement population. Expect cuts to these programs.

So, what’s the good news? Well, are you sitting down because this is huge! The good news is…you’re young! You have ‘time’, precious time. You have the power of compounded growth on your side. By acting now you’ll have significantly more choices later. If not, you will only have yourself to blame. You may think retirement is a long way away, it’s not. Just ask anyone who’s retired, they will tell you how quickly you’ll be old. There’re not joking. You won’t be young for long!

Let me tell you a secret. Wealth accumulation is simple. Truly! You don’t need to make a bunch of money. All it takes is a little discipline over a long period of time. The little spending decisions you make each day will impact your life later. You have what it takes. The question is…. will you?