Savings, Age, Old
Most of us are born procrastinators. That’s why we start
saving late in life and hope to make up the difference by hitting the lotto or,
if we must, by working longer. Neither is a great strategy.
The odds of hitting a Mega Millions jackpot are, of course,
insanely long—around one in 176 million. Remarkably, one in three Americans say
this is their best shot at financial security. Working longer has its issues as
well, especially for low earners and those in physically demanding jobs.

Saving early and letting your gains compound for 40 years is
really the best option. To make that point, this Forbes blogger offers
an intriguing math question:
“If a wagon train averages 10 miles a day for the first half
of the Oregon Trail, how fast does it have to travel the second half to average
20 miles a day for the entire journey?”
The knee-jerk response is, naturally, 30 miles a day. But,
as you might imagine, that wouldn’t be worth writing about and isn’t even close
to correct. The blog continues:
“If the trail is 2,000 miles long, to average 20 miles a day
you would have to travel the entire trail in 100 days. But if you averaged 10
miles a day traveling the first 1,000 miles, you would have already used up 100
days. You would then have to travel the second thousand miles instantly to
overcome your slow start.”
That might be apparent to a mathematician. But for most people
it’s a surprise—and it describes the predicament of those who start saving
late. They face an almost impossible task and are destined to downsize their
Fidelity Investments recently published a guide as
to how much you should have saved by various points in your life in order to be
on track. In an encouraging sign, young people seem to be getting started much
earlier than their parents. According to a report in the Wall
Street Journal:

Here’s Forbes’ analysis of how a late start affects
your required savings rate:
  • Start at age 15, and you need to save 8% of annual income
    for life.
  • Start at age 20, and you need to save 11.1% of annual income
    for life.
  • At age 25 you need to save 15.4%.
  • At age 30 you need to save 21.4%.
  • At age 35 you need to save 30.1%.
  • At age 40 you need to save 43.2%.

It just gets worse from there, so that if you do not start
saving until age 50 you need to save every dime you make. This is just one
person’s model, and it all becomes much more feasible if you ratchet down
expenses. According to the analysis:
“Saving 100% of your lifestyle sounds impossible, but it is
not. If you earn $100,000 after taxes, you must limit your lifestyle to $50,000
and save the remainder. This strategy will allow you to retire at age 65 with a
lifestyle of $50,000.”
This exercise dovetails nicely with the Herculean
assumptions in the Fidelity report. The point isn’t so much the precise
nature of the savings rates cited, but how delaying even as little as five
years changes the calculus.

Source: TIME


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