I recently read an interesting statistic; the average age someone starts to save for retirement is 34. I was astonished to read this statistic. For starters, it indicated that half the people who had answered the survey were older than 34 when they started to save for retirement. However, this also indicated that people that were working between the ages of 22-34 were spending their paychecks fully and not even considering saving for retirement. I find this to be absurd, how can people spend every dollar they make and expect to retire at some point.
Perhaps I am being unfair to people who do not make enough to meet ends meet, and I apologize if my blog post is not being sensitive to those who fall into this category, but for those who don’t and make more than enough to save for their future… What is going through your mind??
I know that in America it’s hard to save money. This is the consumer capital of the world where people can buy almost anything on credit and spend their lives paying back credit card debt. I choose to live a more modest lifestyle and plan on working till I can retire at the age range of 65-70. I just don’t think that I will be able to rely on anyone else saving me.
Skeptical of Social Security
Being that I am a major skeptic of government retirement programs, I approach all my retirement savings with the assumption that I will not merit any financial benefit from the government once I hit 65-70. That being said, it’s so much more crucial for me to save now. These folks who aren’t saving money, are simply relying that Social Security is gonna cover them in their old age. This program is unsustainable now when the average person is living till they are 73. Can you imagine what the average lifespan will be in 50 years. We may cross the 3 digit territory which will make Social Security that much more unsustainable.
How you should plan on saving? (HSA, Roth IRA, IRA, 401(k))
I plan on retiring at some point by saving money in multiple retirements accounts. The accounts you can save with are Roth IRA, IRA, 401(k), and HSA. Assuming someone has been maxing out their savings in all of these accounts since they started working, in 5 years they could have close to $150,000 in savings. In case you don’t believe me, here is my math. Here is how I would calculate this total.
If someone started working in 2009, it would mean that the max contribution limit for their 401(k) was $16,500 for 2009-2011, $17,000 for the 2012 fiscal year, and they would plan on saving $17,500 for 2013. This total alone comes out to $84,000.
Their Roth IRA would also be maxed out since 2009 which would indicate max contributions of $5,000 from 2009-20012 and $5,500 contribution for 2013. This total would come out to $25,500 capital gains withstanding.
Finally their HSA could be maxed out as well which means that for 2009 they would have contributed $3000, 2010-2011: $3050, 2012: $3100 and 2013: $3250. This total would come out to $15,450 once again capital gains withstanding.
Here is a spreadsheet that indicates the totals and assumes different capital gains growth rates over that time period.
| YEAR | 401(k) | Roth IRA | Health SA | Total no Growth | 6% Growth Totals | 8% Growth Totals |
| 2009 | $16,500.00 | $5,000.00 | $3,000.00 | $24,500.00 | $0.00 | $0.00 |
| 2010 | $16,500.00 | $5,000.00 | $3,050.00 | $24,550.00 | $24,500.00 | $24,500.00 |
| 2011 | $16,500.00 | $5,000.00 | $3,050.00 | $24,550.00 | $50,520.00 | $51,010.00 |
| 2012 | $17,000.00 | $5,000.00 | $3,100.00 | $25,100.00 | $78,101.20 | $79,640.80 |
| 2013 | $17,500.00 | $5,500.00 | $3,250.00 | $26,250.00 | $107,887.27 | $111,112.06 |
| Total | $84,000.00 | $25,500.00 | $15,450.00 | $124,950.00 | $140,610.51 | $146,251.03 |
As you can see, in just 5 years, this young investor can already have saved $150,000 and have close to $25,000 in capital gains.
Comparing Returns
Imagine if we compare these values to an investor who decides to start investing at 28. I want to just demonstrate the difference in their returns. If you look at the chart below, I color coded the bottom line results between both investors. The investor who did not save a penny from 22 to 28 and started saving at the age of 28 (red), has nearly 2/3 the annual returns of the investor who started saving at the age of 22 (green). I made this discrepancy even more apparent because the 22 year old investor was only making a 6% annual return, which is much more feasible than a 10% return over the span of 15 or so years. This 150k cap will continue to grow through time.
| Age | Year | 401(k) | Roth IRA | Health SA | 6% Growth Totals | 8% Growth Totals | 6% Growth Totals | 8% Growth Totals | 10% Growth Totals |
| 21 | 2009 | $16,500.00 | $5,000.00 | $3,000.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| 22 | 2010 | $16,500.00 | $5,000.00 | $3,050.00 | $24,500.00 | $24,500.00 | $0.00 | $0.00 | $0.00 |
| 23 | 2011 | $16,500.00 | $5,000.00 | $3,050.00 | $50,520.00 | $51,010.00 | $0.00 | $0.00 | $0.00 |
| 24 | 2012 | $17,000.00 | $5,000.00 | $3,100.00 | $78,101.20 | $79,640.80 | $0.00 | $0.00 | $0.00 |
| 25 | 2013 | $17,500.00 | $5,500.00 | $3,250.00 | $107,887.27 | $111,112.06 | $0.00 | $0.00 | $0.00 |
| 26 | 2014 | $17,500.00 | $5,500.00 | $3,250.00 | $140,610.51 | $146,251.03 | $0.00 | $0.00 | $0.00 |
| 27 | 2015 | $17,500.00 | $5,500.00 | $3,250.00 | $175,297.14 | $184,201.11 | $0.00 | $0.00 | $0.00 |
| 28 | 2016 | $17,500.00 | $5,500.00 | $3,250.00 | $212,064.97 | $225,187.20 | $26,250.00 | $26,250.00 | $26,250.00 |
| 29 | 2017 | $17,500.00 | $5,500.00 | $3,250.00 | $251,038.87 | $269,452.18 | $54,075.00 | $54,600.00 | $55,125.00 |
| 30 | 2018 | $17,500.00 | $5,500.00 | $3,250.00 | $292,351.20 | $317,258.35 | $83,569.50 | $85,218.00 | $86,887.50 |
| 31 | 2019 | $17,500.00 | $5,500.00 | $3,250.00 | $336,142.27 | $368,889.02 | $114,833.67 | $118,285.44 | $121,826.25 |
| 32 | 2020 | $17,500.00 | $5,500.00 | $3,250.00 | $382,560.81 | $424,650.14 | $147,973.69 | $153,998.28 | $160,258.88 |
| 33 | 2021 | $17,500.00 | $5,500.00 | $3,250.00 | $431,764.45 | $484,872.15 | $183,102.11 | $192,568.14 | $202,534.76 |
| 34 | 2022 | $17,500.00 | $5,500.00 | $3,250.00 | $483,920.32 | $549,911.92 | $220,338.24 | $234,223.59 | $249,038.24 |
| 35 | 2022 | $17,500.00 | $5,500.00 | $3,250.00 | $539,205.54 | $620,154.88 | $259,808.53 | $279,211.48 | $300,192.06 |
| Total | $259,000.00 | $80,500.00 | $47,950.00 | $597,807.87 | $696,017.27 | $301,647.04 | $327,798.39 | $356,461.27 |
Bottom Line
If you want more money in your bottom line by the time you want to retire. Start saving as early on as you can.