There is an adage among financial professionals: “Pay Yourself First.” It a good habit to start as your working life begins. The risk of not doing so as you approach retirement is significant.
Michael Batnick, in a blog post titled “The Cost of Waiting,” outlines the penalty for waiting too long to begin saving. Using the 90th percentile, pre-retirees saved $855,000. Using this as our goal:
Assume it is 1980
- Earnings $61,200 in today dollars
- Save 10% pre-tax income adjust monthly for inflation
- 80% stock, 20% bonds from age 22 through 39;
- 60% stock 40% bond from age 40 through 54
- 40% stock stocks 60% bonds age 55 through 60
- Initial savings rate would be $159 month
The earlier you save, the more money is invested and growing. The later your start, the more you have to save monthly to make up for lost time.
If you didn’t start savings for five years, instead of $159/month, it would be necessary to save $327 per month. If you wait 10 years, the savings required to get to $855,000 at age 60 would be $570 per month!