Waiting Is An Expensive Proposition

By Jonathan Leon

“Time keeps on slippin', slippin', slippin' into the future”

Steve Miller Band 1976

Time is your most precious commodity, it can never be replaced. Once it passes, you can never get it back. We all think that we have all the time in the world, put it passes in a flicker. Ask your parents, aunts, uncles or grandparents. This concept applies to investing for the future. Each year that goes by can cost you thousands of dollars in future savings. Let me start by introducing you to the Rule of 72. It is a simple financial concept that could mean the difference between having a couple of hundred thousand dollars in savings vs. a couple of million. 

 The RULE OF 72 calculates the number of years it takes for your money to DOUBLE

You take the number 72 and divide it by the interest rate you receive.

 Let’s say you go to the bank and they offer to pay you 1% interest on your money, compounded for 72 years;

72 / 1% = 72 years. $1,000 = $2,000 in 72 years

Now, let’s say you can invest your money at 9%, compounded for 72 years;

72 / 9% = 8 years. $1,000 = $2,000 in 8 years.

Now let’s see how the numbers would look if you invested $300 per month for 35 years (Age 25 – 60)

1% = $251,952

9% = $1,488,843

Which one would you prefer?

Now, let’s talk about time. We will use the same example from above, $300/month. 

Starting at Age 25 for 35 years = $1,488,843

Starting at Age 26 for 34 years = $1,355,397

You can see waiting just ONE year (and not investing $3,600) would cost you $133,446 in retirement savings.

Starting at Age 30 for 30 years = $926,656

Waiting FIVE years (and not investing $18,000) costs you $562,187.

So, as you can see, the cost of waiting can be very expensive. However, what if you started by maxing out your IRA contributions as soon as possible?

Below is a comparison of a fast start for 8 years, than cruise control for the next 38 years vs. doing nothing for the first 8 years and then trying to play catch-up for the next 38 years.

Investor A contributes $500 per month starting at age 22 for 8 years and stops. 38 years later at age 67 he has accumulated $2,214,850.

Investor B waits 8 years and then starts contributing the same $500 per month for the next 38 years. At age 67, he has $2,041,590 saved for retirement.

Investor A has contributed a total of $48,000 while Investor B has contributed $228,000. Investor A has an additional $173,260 saved while investing $180,000 LESS than Investor B. Waiting those 8 years cost Investor B over $350,000 dollars.

Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn't, pays it.”

The good news is, it is never too late to get started on your own path to financial independence.

If you haven’t sat down with your own personal financial advisor, now is the time. We at Primerica do this free of charge. Today is the day you reach out to one, not tomorrow.

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Jonathan Leon is an Independent Representative with Primerica Financial Services. He holds multiple financial licenses in securities, life insurance and mortgage origination. Jonathan is also an Investment Advisor Representative with Primerica Advisors.