The Cost of Waiting

The median retirement portfolio account balance for persons age 56-61 is just $25,000—which is obviously not enough for a healthy retirement, and suggests that many Americans followed less-than-healthy savings habits. In fact, this amount could have been accumulated simply by saving $6 a month in a 60/40 portfolio from 1980 to the present.

A recent blog post by New York-based research director Michael Batnick calculates how procrastination impacts the amount that would have to be saved in order to afford that comfortable retirement. He starts by noting that the 90th percentile pre-retiree has managed to save $855,000. Then he imagines that a hypothetical person starts her worklife in 1980, and invests in an evolving portfolio, 80% stocks, 20% bonds from age 22 through 39, a 60/40 portfolio from age 40 through 54, and 40/60 stocks/bonds until age 60, today. To get to $855,000 today, this person would have had to save $159 a month in the first year, and increased that savings each month commensurate with inflation.

What if she waited five years before starting to save for retirement? Then she’d need to save $327 a month to achieve the same goal. If she waited ten years to get started, the savings would start at $570 a month and rise with inflation. The point of the blog: if you know somebody starting out or in early earning years, invite them to consider the potentially heavy cost of waiting before they start saving—or they could suddenly, unexpectedly, end up with the equivalent of $25,000 and retirement just around the corner.

Stay Diversified, Stay Your Course!

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