Continuing with our series on “financial regrets,” many of our clients say they wished they have maxed-out their retirement savings plans early on. There is a huge opportunity cost of not starting to save while you are young. Investing just $5,000 one time in a stock index fund when you are 22 years old would give you $136,833 by age 65 (assuming average market returns). Investing $5,000 per year for your first five years out of college would give you more than $590,000 by the time you retire, even if you never invest another penny after that! With all that future money at stake, it’s worth making the effort to save early. We urge all of our clients to start out by contributing the maximum to their retirement plans, but it is particularly important for young people to start saving something, even if they can’t save this much.
If you are not young yourself, you can still encourage the young people in your life to save and invest. Instead of a graduation present like a car or watch or a coffee maker, consider contributing to your favorite young person’s IRA to get them started on the right foot. Anyone with earned income can open an IRA and the money will grow tax-free until retirement. It’s never too early.