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Retirement savings done right

Retirement savings done right

Believing there’s enough time to begin saving for retirement can be costly

John and Craig were inseparable friends in college, and while they shared an ambition for success in life, they couldn’t have been more different in their approach to achieving it. John was always brimming with optimism and confidence, expecting that, no matter how many lemons life tossed at him, he could always make lemonade.

Craig had a more understated self-assurance that was tempered by pragmatism. His mantra for success was more like “If it’s to be, it’s up to me”. So, when it came to preparing for their futures, it’s not too difficult to imagine how these very different attitudes might produce two very different results.

Different priorities, different paths

Once settled into his first job, Craig realized that if he were to achieve true financial independence, he would need to develop the habit early on of setting aside a percentage of his income from each paycheck. John, however, felt that there would be time for that in the future, especially when his success would translate into an ever-increasing income. 

Craig set a goal to contribute 15% of his income to his 401k plan, increasing his contribution until it reached $800 per month. Investing in a diversified portfolio of mutual funds, his account would generate an average annual return of 6 percent. Then, without warning, Craig was struck with a disability that forced him to stop working at the young age of 45. Relying solely on disability income payments for living expenses, he was unable to contribute any more to his 401k plan, which, by then, had grown to nearly $365,000.

Meanwhile, John was busy contributing to his lifestyle, doing his best to keep up with his friends, many of whom were professionals earning a much higher income than John. He wasn’t concerned, though, because he figured that, through a series of expected promotions, his income would more than double, enabling him to catch up in his 401k plan. Finally, at age 45, about the same time Craig had to stop working, John began contributing in earnest to his retirement plan. 

The promotions didn’t come as quickly as expected, and, unexpectedly, he was laid off and forced to take a similar position at another company at lower pay. He also found it very difficult to adjust his lifestyle enough to save more than $800 per month, but with 20 years left to save before his retirement, he wasn’t that concerned. He also invested in a portfolio of mutual funds, averaging 6% annually, which grew his retirement account to just over $360,000 by the time he was 65. 

Where are they now?

These were two guys – the same age, each saving $800 a month and generating the same annual return, and each accumulating around $360,000. There is, however, one significant difference: One started early, and one waited before saving. That considerable difference resulted in a $900,000 difference in the amount of money they had accumulated by age 65. Although Craig stopped making contributions to his plan while John was making his “catch up” contributions, Craig’s funds continued to earn 6% and grew to nearly $1.3 million

The high cost of waiting

The moral of the story is that we all have roughly the same amount of time — from the time we start working to the time we would like to retire. Yet, not everyone recognizes that time is not only our most valuable asset; it’s also a wasting asset. John, and everyone else who believes there is going to be enough time, proved that there is an actual cost of waiting.

Unfortunately, too many people come to that realization after it’s too late. As time is wasted, the cost of our financial goals increases. John may have had an opportunity to catch up to Craig; however, it would have cost him four times as much in additional savings, or he would have had to assume a lot more risk to generate a higher return. 

 Essentially, the more time you have, the less it will cost you to achieve your goals. Time can also mitigate risk, enabling us to assume less risk with a longer span of time for our money to work for us. We all start out with more time than money, which is why it’s essential to start saving early.

Learn more about Alpine Bank’s Individual Retirement Account (IRA) options today.

About This Author


Alpine Bank Staff

Alpine Bank is an independent, employee-owned organization with headquarters in Glenwood Springs and banking offices across Colorado’s Western Slope, mountains and Front Range.

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