Senior Advisor Ricardo Garcia of TRB Trust & Wealth Management explains why starting early can be one of the most valuable advantages in retirement planning.
I recently spoke with a group of young employees about retirement planning, and I told them something I often tell college students during financial literacy presentations: retirement is probably the last thing on your mind right now.
I understand that. You may be building a career, saving for a house or starting a family. But you are also at a great age to begin investing. To explain why, I use a story about two people I call Joe and Bob. They’re not real clients. It’s just a simple way I use to show what a few extra years can do for your money.
Joe starts investing $300 a month at age 19. He keeps it up until about 26, when life gets a little more complicated. Maybe he gets married, buys a house, has kids, or decides he wants a big truck.
Whatever the reason, he stops contributing. But he leaves the money invested.
Bob looks at Joe and thinks, “Hey, that’s a good idea.” The problem is, he starts a little later. He begins at 27 and contributes the same $300 a month every year until he retires at 65.
You would probably think Bob would finish with more money. After all, he contributes for decades longer.
Under the hypothetical 10% annual return used in this example, Joe finishes with about $1.8 million, while Bob finishes with about $1.5 million.
In this Article
Key Takeaways
- Starting retirement savings early gives investments more time to benefit from compounding, even when initial contributions are modest.
- Consistent contributions and a longer investment horizon can significantly influence retirement outcomes, although investment returns are never guaranteed.
Why Does Starting Early Make Such a Difference?
The short answer is compounding. Money that stays invested has the opportunity to grow, and that growth can begin generating growth of its own. Joe simply gave his money more time to do that work.
That is the whole point of the example. Bob contributed much longer, but Joe had something Bob could never go back and get: more time.
Of course, markets do not produce the same return every year, and investment returns are never guaranteed. This is a hypothetical illustration, but the lesson is one I come back to often.
Do I Need to Save a Lot to Start?
No. You need to start with an amount that works for you.a
When I talk with college students and young professionals across the Rio Grande Valley, retirement can feel like something for a much older version of themselves. I get it. But those early years are valuable because they give your money more time to grow.
My Perspective
I’ve always encouraged people to start investing as early as they reasonably can. If your employer offers a retirement plan, find out how it works. Understand your options. Start with an amount that fits your budget and consider increasing your contributions as your circumstances change.
You can make more money later. You can increase your contributions. You can adjust your investments along the way. What you cannot do later is go back and give your money more time.
Learn more about Rick’s fiduciary approach, commitment to financial education and how he helps clients make informed investment decisions throughout South Texas.
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