Saving for Retirement: A Race or a Marathon?

I like to describe saving for retirement as a life-long journey. This journey has it’s starts and stops, detours, layovers, fast highways, traffic jams, and, finally, the destination.  You get it…it’s a long haul akin to a marathon. You need to keep a long-term perspective.

But for younger workers, I also like to think of it as a race. Specifically, it is a race to $100,000 of savings.

You’ve heard it’s helpful to save early so that you can let the magic of compound interest (earnings) work for you over time. The “race to $100,000” is a mind-set that younger workers should adopt. Specifically, if someone can save $100,000 by age 30 (or a little later), they will almost guarantee a well-funded retirement.

Let’s look at some numbers and use the “rule of 72” to make the examples easier to understand. The rule of 72 means that if you divide 72 by a projected interest rate, that’s equal to the number of years it takes for your money to double. I will assume they earn 9% and they do not save anything after they have saved $100,000. Their saving will double every eight years (72 divided by 9 equals 8). Watch how it grows.

                                           Age                      Amount

                                           30                        $100,000

                                           38                        $200,000

                                           46                        $400,000

                                           54                        $800,000

                                           62                        $1,600,000

                                           70                        $3,200,000

Remember, in this example they saved $100,000 by age 30 and never saved another cent.  Imagine how the numbers would look if they continued to save until retirement or if they earned more than 9% over the long run. In case you’re wondering, the example above would grow to about $2,072,046 at age 65.

This example exposes the dirty little secret of compound earnings…it’s the last couple of doubles that make it explode. To get those last couple of doubles, you need to start saving early.

For young adults just getting into the workforce, the best advice they can get is to save as much as they can right away. If they can get to $100,000 by age 30 (or close to it), it will reduce the pressure of saving for the rest of their working career and almost ensure a solid retirement nest egg. If their lives are like mine, life doesn’t get any cheaper as you age (mortgages, kids, college, etc) and sometimes things happen along the way (job loss, medical issues, etc). Save early and often!

Enjoy the journey!