Retirement Planning Mistakes: Mistake #1

Mistake number one in my book is failure to save or to not follow The Golden Rule of Investing.  Open up a spreadsheet and run your own calculations for the following classic comparison.

  • As a nineteen year old you have the foresight and financial opportunity to save $2,000 per year for eight years.  After saving $16,000, for some reason you stop.
  • This $16,000 investment manages to earn the unlikely rate of 10% per year until retirement at 65.
  • A second investor puts off saving until age 27 or just after the first investor stops saving.
  • The second investor also saves $2,000 per year, but continues saving this amount every year until age 65.
  • 65 – 27 = 38 years of saving or $76,000 dollars.
  • The second investor also sees her investment yield the unlikely rate of 10% per year.

The question is – which investor ends up with the largest retirement fund at age 65 and what is the difference?  Any guesses as to which investor has the larger retirement fund at age 65?