MSN to Twenty-somethings: Take Note!

So last week I posted an article on "Reckless Saving" on which I..disagreed with. There was an excellent rebuttal written by another writer for the same website which you can read here. Ok, on to today's topic.

I think it's important to re-emphasize the importance of time vs. money when you are working and investing a portion of your salary. Starting in your 20s to prepare for retirement is no new trend--I've come across many folks who plan to "retire" at 30 or 40. I don't know what they plant to do for the next 40 years after that, but that's another story that you can share in the comments section if you fall in said category.

But if you plan to slowly build up your investment income and retirement level, consider the following insight from MSN:

Imagine, for example, that you want to have $1 million by the time you retire in 40 years. That would be enough to provide an annual retirement income of $40,000 for the rest of your life.

But in fact, you’ll need $3.26 million, because if inflation averages 3 percent a year, that's how much it will take to buy what $1 million buys today. The $3.26 million should produce an annual income of $130,000 — equal to $40,000 in 2007.

I know what you're thinking--$1 Million would be plenty to live in retirement, right? I mean by then you would have paid off your home, sent the kids to college, and cut down your diet to the essentials of applesauce and medicine. (Well, maybe it won't be that bad.) However, there is some truth to the hidden tax of inflation--$1 Million went way farther in 1967 than in 2007 and rest assured that in 2047 $1 Million would get you even less.

As we've said before, it's not the money that matters. It's the time:

Start investing now and earn an average annual return of 10 percent — ambitious, but possible — and you’d have to invest about $7,400 a year to get to $3.26 million in 40 years. But if you wait 10 years to start investing you’ll have to set aside nearly $20,000 a year.

Yikes! Waiting a simple 10 years (meaning if you start at 33 rather than 23) you would have to expend three times as much money to retire with the same nest egg at the same point. (And that's over a 40-year horizon). It's tough sometimes--you get out of school and being responsible is the last thing on your mind--most feel that they will "always have money" and don't bother investing at all. Then you'll hit 30 or so and suddenly it's time to "get serious." Why wait till then?

The source of my quote above come from an informative MSN Article on advice for young investors. There's other tidbits on getting involved in mutual funds (and less on individual stocks), watching those fund fees (just get an index fund), and having the discipline to pull out of the market as it ebbs and flows. Good reading material.

I'll be traveling again, so make sure read about other blogs to the right (Face Bookers click through to see what I mean). And do me a big favor? Make sure you mention that I referred them to you. Traffic exchange and all :-)

See you soon.