Retirement: Never too Early to Plan

By:Daniel D. Morris, CPA, CGMA, TEP

***Editor’s Note: The following article is one viewpoint on retirement saving. On 
August 28, another viewpoint was published in the article “
Retirement: Never too Late to Plan.”

My father once stated that “Life is wasted on the youth.” As a typical twenty-something I scoffed at his words. However, when you think about it, most people do not understand the complexities of life until they are much older.

A funny thing about time; it passes. Minutes into Hours, hours into days, days into decades, and decades into lifetimes. Time is merely a constant in “life’s” equation. Time has a series of attributes and the most financially impressive one is the concept of Compounding Interest.

Compounding interest, also referred as the “10th Wonder of the World”, represents how time influences the value of assets and investments. For example, a $1 investment earning 6% becomes $10 in forty years. That same investment delayed by twenty years only grows to $3. The second twenty years are worth twice the first twenty. The difference is solely the result of compounding interest.

Author Suze Orman describes how foregoing a daily Starbucks beverage and instead investing that value is the difference between retiring poor and retiring wealthy. Assuming a twenty-year-old learns the habit of saving $100 per month (about the cost of a daily fancy coffee) and earns a basic 6% rate, after forty years, the account has over $200,000 in it.

Increase that monthly investment to $500 and before age 60, that twenty-year-old is a millionaire. The value of time is that time marches forward whether you want it to or not. If investing is stalled until the age of forty, it requires $1,520 to match that hallmark millionaire status. The penalty of waiting is that more investment is required and at greater risks.

Intellectually we understand this notion. The challenge is applying the knowledge to practice. It simply isn’t easy. We all have wants and needs. We all make decisions balancing gratification today (new cars, fancy trips, bigger houses, etc.) versus saving for our distant future. This conundrum is even faced with knowledge we generally fail to follow our brains when our emotions steer us towards instant fun.

The recipe for financial security for millennials is simple. Live beneath your means, save 10% of what you make, avoid debt, enjoy friends, and treat yourself to dessert whenever possible.

Time is the best ingredient for a secure future. Learning its true value earlier is far superior to understanding it later. Take the first step and secure your future by investing small amounts today.

Daniel D. Morris, CPA, TEP, PPGD(PWA) is the Chief Dragon Slayer of Morris + D’Angelo, a multi-office boutique accountancy and advisory firm headquartered in the Silicon Valley. Daniel provides creative cross-border solutions in an ever-changing and complex world where families, entrepreneurship, generational transfers, asset protection, taxation, law, philanthropy, and stewardship intersect. With offices along America’s West Coast and affiliated locations covering the Caribbean, EU, and Asia, Daniel’s personal and professional networks provide near instantaneous connections with leading experts across all disciplines.The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the treasurer, his office or the State of California.