Who Is Going To Give You Money To Retire?

by Thomas Mengel

The title here is a bit of a trick question, of course. No one is going to give you money for your retirement!

So why did we ask? We like to pose this question because it gets people thinking about their priorities when it comes to saving for the future.

Consider how you might answer this question if, instead of retirement, the topic focused on some other major undertaking or life decision. For example, “Who is going to give you money to go to school?” You could, of course, pay your own way (or your child’s way) through school. But there are options for obtaining an education without taking money out of your pocket, such as scholarships, grants and student work programs. Loans are readily available to fill any gaps, with payments typically deferred until after school.

There are literally thousands of people or organizations that might potentially “give” you money to go to school. The same concept applies to buying a house, starting or growing a business, or managing any other life events.

We ask our readers to do this exercise because it reveals what our first priority should be when saving and investing. As wealth planners, we have too often heard people say things like “I’ll start saving for retirement in another five years, after I’ve maxed out my son’s college fund” or “Retirement is so far away, and I need that money now to grow my business.”

Saving for college and growing your business are important investments too—we don’t deny that. But these are precisely the sorts of undertakings in which other people are willing to invest. By contrast, the only person who will be investing in your retirement is you.

This has serious implications for your financial planning. It means that the first life event you should be saving for is retirement. And your plans for retirement—financial and otherwise—need to start today.

To see the importance of starting early, just look at a retirement calculator. (There are several available online.) Suppose you want to save enough to retire at age 65 on a $2 million nest egg, which is a reasonable goal to maintain an $80,000-a-year lifestyle. If you started saving and investing at age 45, assuming a generous 8% after-tax return in the market year after year, you would need to invest around $43,700 a year, or about $874,000 total, to hit your goal.

On the other hand, if you started investing 10 years earlier, at age 35, you would need to invest just $17,700 annually, or about $530,000 total, to reach the same amount. Letting compound interest do more of the work means you’re investing $344,000 less out of pocket!

Remember: Only you will be contributing to your retirement. The earlier you start, the less money you will have to contribute over time. Sure, there are other events that might seem like priorities because they happen sooner. But whether it is school, home or business, there is almost always someone willing to give you money to accomplish these goals. Take advantage of those other avenues and free up that cash to invest in yourself. It will be a savvy investment in your very own financial freedom.

The hypothetical investment results are for illustrative purposes only. Rates of return will vary over time, particularly for long-term investments.

Thomas Mengel is a founding partner of MSMF, where he advises clients on matters including portfolio management, family wealth planning and business succession. Tom can be reached at his office at 12213 Big Bend Road, Kirkwood, MO, 62122 and by phone at 314-677-2550.
 
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