Hope to Retire? Better Get Started Now!

As the father of 23 and 26 year olds – and supposed money & investing professional, the idea of when to start saving and how aggressively to save has taken center stage among my fatherly duties. 

Both of my kids (knock on wood) are out of college, gainfully employed, and (yippee) out of the house.  That alone puts them in the minority for kids their age.  And while neither are bringing home the big bucks (yet) – it’s become obvious that they need to get into a savings habit right away.

Now to a 20-something, $200 a month is a lot of money – yet – that’s what I’ve pushed both my girls to do.  To my delight – they’ve both listened.  I’ve also advised them to increase their savings at least every few years.  Stay away from 401k-type plans.  Stick with it.  Be aggressive.  Do without if necessary. 

So here’s the trajectory I have them on:

Now – a few observations that all of us parents should take away from this example:

·        I’ve suggested a very aggressive saving rate – one that most people would see as almost impossible.  Yet it is necessary to achieve the outcome I’ve projected.

·        Because the older daughter is starting 3 years later (and therefore saving three fewer years) the retirement income “penalty” for starting just three years later is almost 25%.  GET YOUR KIDS STARTED EARLY!!!

·        Those income figures may sound spectacular, but at 3% annual inflation, $204,888 is the inflation adjusted equivalent of about $56,000 today – a comfortable – but not lavish retirement ($155,752 = $42,422).

By the way – because I preach tax-free, risk-free, and fee neutral investing – the plan I’ve set them on achieves all three – so their income figures will be tax-free, for life – the only way a young person today should go given the likely future of taxation.