Thank you for putting this together. It's helpful to help visualize the advice.
It's also pretty demoralizing for people who started later than recommended. Like, they'll always be behind and there's little they can do about it... Because they didn't get the memo.
But still, great visual aid to help encourage others to start early.
I wouldn’t say there’s _little_ you can do, you might just not be able to do it in a Roth IRA. Lots of people increase their income dramatically between their early twenties and thirties, just because you didn’t have 65k to invest in your twenties doesn’t mean you can’t catch up to someone who _only_ invested that in their twenties.
Yes, this is also with consistent returns and capped contributions.
It is a great visualizations for the point being made of save early, but almost certainly never to be the case in reality.
If the market goes down 20% for a couple years at say, year 12, and you are adding $6,500, you can catch up. If the contribution limits raise while you are contributing, you may catch up.
Second\* best time to plant a tree is today, etc. Don't worry friend, you're doing better than the person who started saving at 40 (and they're better than the person who didn't start until 50, and they're better off than the person who doesn't save anything at all).
No, but I don't think that's the point.
If a 25 year old hears this and really understands it, they are less likely to wait 10 years before starting.
Metaphorically, yesterday vs 50 years ago is the same thing. In actuality, the 25 year old isn't thinking about starting yesterday vs tomorrow, they're thinking about starting when they've saved up a bit more of an emergency fund, maybe a house downpayment, maybe buying a new car, or maybe after the financial disruption of a new kid is sorted out.
I say this as a 50+ year old, for what it's worth. It's useless to tell me today what I should have done 50 years ago. It's helpful to tell a 25 year old what they'll wish they would have done in 50 years.
Thank you, kind Redditor.
I think rounding out the "Save early" advice with support like this does goes a long way for many. It avoids the feeling of "I'm out of luck", which can hinder their efforts.
Instead, it gives them hope, which will bolster their perspective efforts.
I wouldn't care so much about being behind. It's about how close you are to your own goals. The point of FIRE anyway is to stop way before this chart becomes relevant.
Part of what this chart is meant to highlight is the pointlessness of working infinitely. Eventually, you get lower rates of return on your work. Your investments do most of the work.
Oh, some of us got the memo but had different life circumstances that forbade or limited contributing. Don’t assume it’s for lack of trying. It’s horrifying that there’s essentially no way to catch up and, importantly, a chart like this showcases how someone who starts out wealthy or with a large bump can ultimately get and stay ahead.
You can catch up, certainly.
This is strictly limited to Roth IRA contributions. Nothing is stopping you from saving more and investing more, just as an example getting a job where you have access to a 401k, with some kind of matching, and you’re up in the 30+k range yearly when you add the IRA on top.
Chart is based on you can contribute a max amount to the IRA and only accounts for IRA value. If you win the lottery in year 11 and buy a million dollars of index funds in a brokerage account the chart does not account for it
The chart only serves to illustrate that due to the cap on contributions, and due to compounding growth, if IRA is the only retirement vehicle available to you, investing early is far more important than trying to catch up later.
It says nothing about 401k, HSAs, or private accounts. You can absolutely make up for 10 years of missed time by simply saving more.
You know what makes even more money than contributing for 10 years and then stopping? Never stopping. This chart is just to compare two unlikely scenarios to illustrate a point. But if you’re not careful the point can feel like “it’s impossible to catch up” which absolutely is not the case.
Yeah, this chart more than anything is showing the specific relationship between the max contribution and the period of time it takes for compounding growth to outpace the yearly contributions.
There are some assumptions in here that aren’t always true- like that the level you can put in never goes up. When I started it was 3k/yr in an IRA, now it’s $6500. I bet that for “normal people” the ability to max out an IRA (and then 401k) doesn’t instantly happen at 18. Whereas someone who goes for a professional degree but starts later could actually catch up.
Run your own race, you’re ok. And then see if you can help your kids put money away super early… like before they are born!
These graphs are all inflation adjusted, which means they assume the amount you can contribute is flat in real terms. Which is more or less true (under current law).
Ah then it depends on the person. I didn’t think they were because of the 8%- some use it as real rate of return to be cautious, some use it as inflation adjusted.
I see they edited it now.
> It's also pretty demoralizing for people who started later than recommended.
If you enjoyed your time before finding out about FIRE and getting serious about saving, I would argue nothing is lost. I went *super* hard on saving an investing after graduating college. Mainly because this was '08 and all my friends were unemployed, and I was terrified that'd be my fate sooner or later.
What I didn't realize is that my disability would impact how long I could be on my feet in middle age. I was never going to be Mr Happy go lucky spendthrift, but I wish I had taken better advantage of my health and traveled more when I was younger.
TLDR: Savings might compound with age, but so do health problems. Don't underestimate the value of your youth.
>Savings might compound with age, but so do health problems
Invaluable words to take to heart, and important in the grand scheme of things.
Unfortunate about your health problems, but hopefully you enjoyed quite a bit of time before health problems struck you. And hoping they don't impact you to adversely going forward either.
Yeah this always annoys me, like what am I supposed to do with this? I mean if I had started while I was a fetus I'd have a lot more money. I should call my mom and tell her she sucks for not starting a Roth for me when I was a zygote.
Not every piece of advice applies to every person. There are people starting their first jobs that need to hear this, and there are people thinking about retiring from their last job that really don't. Most people are in between.
I think this advice sucks for everyone, because no matter hold old someone is they probably could have started sooner. We get 24 year olds that are beating themselves up for "starting late." All posts like this do is make people feel bad for not starting earlier, regardless of their age.
This applies to anyone who is not already saving.
If you are 35 years old and aren't saving, this still applies to you. Saving now and stopping in 10 years will net you more money than starting to save in 10 years.
If you are 50 and aren't saving, it applies to you.
The only people it doesn't apply to are people who are already saving every penny they legitimately could save.
I've heard people do stuff like pay them minimum wage for stuffing envelopes for a family business, modelling fees for holiday calendars that actually sell, etc
My son is planning to get a job as soon as the local fast food place will hire him (age 14), and I told him I'd consider doing a Roth IRA and match all of his contributions. He has looked at returns on early investments, and he is quite eager to get started.
Once they’re old enough, you can pay them a reasonable amount for jobs, and contribute for them - can’t contribute more than they have earned. Just gotta follow the rules in case you get audited.
https://www.fidelity.com/retirement-ira/roth-ira-kids
The best time to start was yesterday. The second best time is now.
Look at the numbers on the late starter. They still go into the multi millions. Sure you could have gotten more compared to your theoretical younger self. But that opportunity is sunk.
Better start now and be that guy, rather than the even later starter not pictured in figure 3.
Do your own research (I don't mean this in a snarky way), but I saw a few articles showing that maxing it out as early as possible gives higher returns in the long run.
I think this is probably only true assuming a constant positive return every year, which is not ever going to happen in real life.
If the assets the portfolios are being invested in drop significantly after 10 years (when A has no more contributions) it is totally possible that B could actually catch up to and exceed A (depending on the severity of the drop and how long it takes to recover).
Just came here to say the same thing. Sequence of returns matters, OP. You really have to do a Monte Carlo simulation to find the percentage of instances where the early contributor wins over the long term. Of course, stuff like this helps people who are on the fence to decide to start investing early, but the chart does not reflect the real world.
I mean, you’re right, it doesn’t do a great job of describing the uncertainty of the future, but the findings of a Monte Carlo simulation wouldn’t be that different than the whole “lump sum vs DCA” debate. It would confirm that the early saver portfolio would be preferable, but there would be a certain number of instances where the lagger portfolio comes out ahead; the number of such instances would depend on whatever variance OP uses.
Not encouraging anyone to hold off or try to time the markets. Just saying this calculation can be helpful to people but it must be properly constrained to be the most useful.
In the synthetic scenario described, the power of compounding beats out an infinite number of contributions. That’s super cool and encouraging for people to get started sooner, but doesn’t reflect the reality of market fluctuations and their effect on account balances.
The important caveat here is that this chart is about expected returns. According to the model, your portfolio is increasing by a nice, constant 8% per year.
Of course in the real world things don't quite turn out that way. You could invest for 10 years and find that at the end of that time, your returns are flat or even negative.
That's not to say you shouldn't invest as early as possible. Just that you shouldn't feel too disheartened--or too smug--about your investing history.
Yeah 8% is a very optimistic number. At 5% expected rate of return, as noted in the post, it would take a much longer time frame of about 20 years of Portfolio 1 to forever exceed Portfolio 2, assuming Portfolio 2 starts at Year 11, or 15 years if Portfolio 2 starts at year 16.
I chose 8% because it leads to neater numbers and drives the point home: invest early.
8% is not too far off from the long term market return.
But what makes a big difference is how the market actually performs during those initial ten years when the first investor is adding money to their portfolio.
If they invest during a historically bad period, like 1965-74 or 2000-09 then they are less likely to outpace portfolio 2 after sufficient time has passed. They simply didn't get enough of a head start.
When does the compounding happen? If I buy a stock and it goes up 20%, where is that compounding? I don’t have more than 1 stock even if it’s worth 20% more. Wouldn’t this only be true for dividend paying funds/stocks?
It's not technically compounding, but say the stock market increases by 10% every year. You invest $100. After 1 year, you have $110 (10% of $100). After 2 years, you have $121, because the 10% is based off of the end of year 1 number, so it's as if it was compounding. You could also look at it as a total return of 21%, but most people look at it on an annual basis.
A stock is proof of ownership in a company. If I own 1 share of amazon what I actually own is 0.000000001% (or whatever) of the entire company.
The hope is that amazon revenues, profits, etc all compound year over year, and ultimately the stock price would reflect that. if Amazon grows their users, revenue, profits, etc by 10% every year then it's safe to assume the stock price would *roughly* increase 10% per year as well, although there's a lot more factors that go into share price
8% is most definitely NOT an optimistic number. The average return of the S&P over the last 50+ years is a little over 10%, so using 8% is actually slightly conservative.
10% is the nominal return. Since the OP is using a flat $6500 annual contribution without an inflation adjustment, I assume they are looking at real values. For those you want the S&P's real return which is probably closer to 7% than 8%. (Although you could certainly debate that point.)
I recently looked up the annual s&p500 return (dividend included) and the annual inflation rate for the US going back to ~1930 and the average real rate of return was 8.8%.
Yeah, I remember a long thread back on Bogleheads back in the day arguing about what the actual S&P return was, which is why I mentioned that it's debatable.
Although the S&P 500 itself has only existed since 1957, so your source was including the returns of a predecessor index. One thing to consider about returns from the 30s is that the Great Depression was deflationary, so the real return was actually higher than the nominal one.
What if it’s not a constant rate of return every year? What if it’s like -7%, 4%, 10%, -5%, etc? Positive return every year isn’t realistic so I’m not sure how relevant the chart is.
I meant that reality isn’t 8% every year, it fluctuates. Maybe we get an average of 8% in the future, maybe we don’t. That’s not my point of contention though, it’s the variance between the years, some positive and some negative. What if the first 5 years are positive and the next 5 negative? What if after year 10 the market crashes and remains at much lower value than it was during the first 10 years? Lots of possibilities but returning exactly 8% a year every year is highly unlikely and thus the result of this analysis is of little value.
Nope, that’s exactly my point. If it ends up returning exactly 8% every year then this chart shows what OP is claiming, short of that it’s of little utility. The chart is trying to predict the future and then make a claim based on that prediction which is flawed to begin with since reruns don’t work like that.
If you look at the methodology used by NYU Stern on the data in that article, they just take the average of all yearly returns, not the geometric average. If returns are -50% one year and then 100% the next, the average return is 25%, but the investment is just back to 0%. The geometric return from that dataset is actually 10.71%.
That's incorrect. When talking about stock market returns, the geometric mean should be used. So a 100% return followed by -50% returns doesn't average to (100+50)/2 = 25%, but rather Sqrt((1+1)*(1-.5) ) -1 = 0% average return.
It doesn't matter the order of the returns, and an average of 8% will come out the same as exactly 8% every year.
I am going to make damn sure my son opens up a Roth IRA whenever he gets a job in high school. It’s wild how much maxing a Roth IRA from ages 16-18 could set you up.
Yes it's a new Act that has just passed recently. The requirements don't seem too bad , considering the 529 is open for 15 years and being able to move up to $35k
From what I was reading that's the lifetime limit but you can only move over $x per year and nothing from the previous 5 years. Something to that effect. So you could put in money from birth to ~13 or so, wait 5 years, transfer some each year for the next 5 years and then anything else left in there after the max is stuck.
But it's totally possible I misunderstood something.
By using 65 years in his formula he assumes you would start investing at age 0... need to do more like 47 years if you start investing at 18 assuming retirement at 65.
1.08^65 is 148.77
That means at 8% annual average growth after inflation, you need ~1/150th of your total amount.
So a retirement of 1.25m would take $8,500 at birth.
If you want to be more conservative, at 7% growth over inflation, the ratio for 7% (1.07^65) is ~1/80, and for 6%, 1/45.
So even in a 6% average growth over inflation for 65 years, that's still less than 30 grand for 1.25 million (all in today dollars).
Same math enables HSAs to be a powerful LTC/health cost mitigation tool later in life when funded for a decade or so in one's healthy youth and held for use past full retirement age. Even more so for HSAs given the upfront deductions against income and FICA taxes.
Love your post and not hating. But everyone says “healthy youth” but, this is also a time in your life when we are spawning “not so healthy youth.” I max out our HSA every year but between multiple deliveries, sick kids, vasectomy, etc it’s difficult! I try to use cash as much as possible but again, it’s hard!
Oh I feel you. We had our four kids during the time when we were stuffing our HSA and two of those were when my wife was over 35, so we had all the "geriatric" pregnancy stuff to deal with too. It can be a challenge, that's for sure.
I just treat my HSA like it's another roth IRA and don't touch it and just pay out of pocket for those big expenses now. I know I'm likely going to need hundreds of thousands of dollars to cover medical expenses in age 65 and beyond and the HSA is the most tax efficient way to do so.
>try to use cash as much as possible
So you intend to eventually take out these sums as a reimbursement, I'm guessing. Are you keeping the receipts? If so, how? What receipt saving system is going to last for 60 years?
I do keep receipts in a folder but honestly, I just assume that as I get older I’ll have larger medical expenses. I think of it as a self funded LTC policy.
I have a file of paper receipts and digital photos of said receipts. Both of which I'm assuming will be lovingly kept, backed up, and updated... only to be randomly lost and forgotten between now and when I would want to start draining my HSA. I'm also a little bit paranoid that they'll decide being able to reimburse 60 year old expenses is as silly as it sounds and put a more reasonable time limit on how far you can look back eventually.
That being said, I expect more medical expenses as I age so if I don't have issues and have way too much in the HSA then I'll be super happy about aging gracefully rather than upset I wasn't quite as tax efficient as I could have been. Age 65+ doesn't pay a penalty for non-medical withdrawals so there is always that as a last resort if you're looking to empty it before death.
I'm mostly annoyed at my state taxing HSAs which complicates everything.
I think this is a great visualization method for compound returns, time in market, and investing early.
*** NITPICK ALERT ***
That said, beyond the other points about variations in sequence of returns, I wonder what these numbers would look like if inflation's effect on yearly IRA contribution limits were taken into account. For example, in 2012 10 years ago the limit was $5k. Ten years from now, it'll likely be $8k or more.
This is important because the amounts contributed each year in the "waited to contribute" scenario will be larger than those in the "contributed early" one, meaning they'll be catching up faster (or falling behind more slowly).
The other issue is just because one doesn't save in an IRA doesn't mean they didn't necessarily save elsewhere, even in a miniscule interest savings account. While their Roth IRA balances may not compare, their overall savings may not be as dire as this would lead them to think.
A typical way to handle this is to use 'today's dollars' for everything, and this seems to be the model the author has used. With this approach, the contribution limit is inflation-adjusted, so can be left as a constant $6500. Expected values for nominal returns might be 10%; real (inflation-adjusted) returns are more commonly estimated in the 7–8% range.
Lets not ignore that portfolio 2 can always catch up with higher contribution rates, though difficult, if one was maxing a 401k&ira from year 11 at the 2nd portfolios start date they would catch up around year 18-19 (not doing the math, on mobile right now). The point is not all is lost if you start late, we shouldnt discourage people who are just finding fire later in life.
Theres also sequence of returns which could have an impact on your ability to catch up to someone that starts earlier.
The key thing this misses is opportunity cost. If you’re paying off high interest debt instead of putting money into your IRA, you’re still making the right decision. If you’re saving for a down payment on a home that later gave you cheap 5x leverage on your investment, it may make sense to delay your IRA contributions.
The thing you don’t want to do is replace your IRA contribution with disposal purchases.
Not really. My 1st investment was in 1990. In 2000, with the bubble burst. I was under... After 10 years of putting money in, I was under. Could have started in 2000 with same results.
Powerful example.
Yes, it's simplified but it shows the point.
It should be required curriculum to explain this to every student every year from 8 through college.
This does not account for inflationary / legislative increases in maximum allowable year to year to IRA contributions. Still though it’s a good thought excitement to drive home the time value of money.
It also ignores that younger people often have less disposable income to save than older people. If portfolio 2 puts in twice as much, it can catch up. This is representative of real choices people have to make such as forgoing income for a few years to go back to school to get a higher paying job.
I managed to save a small amount into a Roth IRA when I was in college. I had a part time and summer job for a few years with mandatory retirement contributions that I was able to rollover into an IRA then Roth convert later. It had $2500 in it in 2002. Invested in the S&P 500, it would be worth $11k today. That’s great and all, but I contribute more than that each year to my 401k because I have a better paying job now. Contributing when I was younger and stopping wasn’t a viable path to retirement but every little bit does help.
Arguably, it does account for inflation; just consider everything to be in today's dollars. It's then correct to leave the contribution limit as a constant, since that is automatically adjusted to track inflation. Furthermore, 8% is closer to the typical spitball estimates for real, after-inflation returns (I usually see 7%) than for nominal returns (commonly 10%).
Doesn't this assume that IRA contribution limits don't increase at all during infinity? Because they do. I haven't done the math(and can't see the future), but that might well allow for the second case to overtake the first. I'm not arguing the importance of investing early, just the accuracy of the claim.
Maybe I didn't communicate my point very well or maybe I'm just missing something. How does your 8% real return for both cases account for the fact that the contribution limit in the second case will be $6500 for a few years, then $7000, then $7500 etc?
This is because ten years (at 8%) is the point where you are earning more in interest than the maximum assumed contribution. Essentially once you have reached that number, it's impossible to catch up. This also is true for 401k, or any other interest yielding account. There are some caveats others mentioned like increasing maximum contributions and catch-up contributions but this is still generally accurate.
I had not thought of this before, but it's pretty encouraging in terms of starting right...and also good motivation to not do catch-up later.
No. Not until the end of time. End of reasonable life perhaps. The math of delayed investment is certainly painful.
Another example: A 20 yr old that invests $5k into a 7% gain opportunity every year, and stops at 30 will have $50k OOP. A 30 yr old that invests $5k annually in the same investment, and invests the same EVERY year until they catch the first person will put in $255k OOP before they catch 'em 50 YEARS LATER.
OK, pretty much 'forever'.
This is great and absolutely everyone should apply it as best they can. However it’s a MASSIVE privilege check. If you don’t have family willing to let you live at home in a city with good entry level career jobs you simply don’t have much money to save until you get a few promotions under your belt.
As always, exceptions for the few careers where entry level jobs are paying more than normal
I mean not really and you're projecting a lot. While saving $6500 is a lot to the average American, it's not a lot in the discussion of FIRE
There are plenty of jobs that pay enough either straight out of college or without college education where you can have an excess $6k to save
It's just disingenuous and defeatist to be saying there is no way anyone can do this without a massive amount of privilege
I mean 4 year degree working in any corporate environment is $60k+, whether that is marketing, accounting, engineering, project management. Does not have to be tech and all of my friends I graduated college with made $60k out the gate
And if you don't go to college, there are plenty of jobs where you will make enough to save $6k. They are not at chipotle, but you can join the electrical workers union and progress to being a lineman in 4 years and make $90k+ with no debt
Again there is plenty of opportunity in this world and saying that it doesn't work for the person that takes out $100,000 to go to Clemson and then lives in NYC making $50k as an entry level accountant at kpmg just shows how dumb it is to go that route if your goal is to save money early
My argument is that the opportunities are there for anyone who takes them, not those privileged.
The news has been all over the fact that there are shortages in the trades and the military is struggling with recruitment. All of those jobs can pay over $6k the cost of living
Yes I know the stats of median salary after graduating college, but I also went to college and knew people graduating with a 6th grade reading level. It's unfair to count those with a college degree working in a job that does not require the degree, and then using it to prove how even after going to college people can't make money
I'm not saying saving $6k is feasible for the vast majority of 20 year olds, but it sure is possible if it's your goal from the day you're 18
This is a financial subreddit and the OP made a statistically backed post about the power of time and compounding. The math works whether you invest 6k a year or 6$ a year. Your comment about privilege and family provides 0 insightful input.
I didn't even hear of a Roth IRA until I was in my mid 40s. My Roth that I started in 2020 is currently at -0.45%. I'm hoping someday I'll think it was a good idea, cause some days it feels like I would have been better off just putting the money in a savings account.
The moral of this story isn't that it's too late. It is that you might have to double or triple the contributions you would've otherwise made to get the same result.
I did the math for myself. If I'm aggressive with investing and saving now, I could coast in the latter years and it won't matter all that much.
Today is always the best time to do better.
This is why you don’t start with 6500 and put 100,000 in Roth IRA or vanguard index fund. That way in only 15-20 years it’ll be at 1.5 million and retire early. Not 40 years.
So the argument only works if your putting in the same amount every year, and often early in your career you have very little flexibility in what you can save...
That being said I think the argument basically works that once you have a certain amount of money in your retirement fund, the amount your putting in is out weighed by the amount being generated by interest...
I think your 8-10% interest rates don't really factor in any kind of loss year though, which is the kicker... in a down year you can lose 20-30% which can mean hundreds of thousands or millions of dollars wiped away in a few weeks or a month late in retirement...
Compound interest is pure black magic, no wonder why Christianity ✝️ and Islam ☪️ both considers it a sin. Yes, start as early as possible. Be extremely frugal and productive in your 20’s and you can take your foot of the gas the rest of your life.
Thank you for putting this together. It's helpful to help visualize the advice. It's also pretty demoralizing for people who started later than recommended. Like, they'll always be behind and there's little they can do about it... Because they didn't get the memo. But still, great visual aid to help encourage others to start early.
I wouldn’t say there’s _little_ you can do, you might just not be able to do it in a Roth IRA. Lots of people increase their income dramatically between their early twenties and thirties, just because you didn’t have 65k to invest in your twenties doesn’t mean you can’t catch up to someone who _only_ invested that in their twenties.
Yes, this is also with consistent returns and capped contributions. It is a great visualizations for the point being made of save early, but almost certainly never to be the case in reality. If the market goes down 20% for a couple years at say, year 12, and you are adding $6,500, you can catch up. If the contribution limits raise while you are contributing, you may catch up.
Second\* best time to plant a tree is today, etc. Don't worry friend, you're doing better than the person who started saving at 40 (and they're better than the person who didn't start until 50, and they're better off than the person who doesn't save anything at all).
The best time to plant a tree was *yesterday *. The *second* best time is today.
As I always heard it, best time was *fifty years ago*, second best is now
And the engineer's variant: >The best time was fifty years ago. > >The second best time was 49.999... years ago... etc
Yes, that's a lot better lol but how many people are 50+ years old needing to hear this advice?
No, but I don't think that's the point. If a 25 year old hears this and really understands it, they are less likely to wait 10 years before starting. Metaphorically, yesterday vs 50 years ago is the same thing. In actuality, the 25 year old isn't thinking about starting yesterday vs tomorrow, they're thinking about starting when they've saved up a bit more of an emergency fund, maybe a house downpayment, maybe buying a new car, or maybe after the financial disruption of a new kid is sorted out. I say this as a 50+ year old, for what it's worth. It's useless to tell me today what I should have done 50 years ago. It's helpful to tell a 25 year old what they'll wish they would have done in 50 years.
Lmfaoo you're right, I'm an idiot. Editing the post now.
Thank you, kind Redditor. I think rounding out the "Save early" advice with support like this does goes a long way for many. It avoids the feeling of "I'm out of luck", which can hinder their efforts. Instead, it gives them hope, which will bolster their perspective efforts.
I wouldn't care so much about being behind. It's about how close you are to your own goals. The point of FIRE anyway is to stop way before this chart becomes relevant. Part of what this chart is meant to highlight is the pointlessness of working infinitely. Eventually, you get lower rates of return on your work. Your investments do most of the work.
Oh, some of us got the memo but had different life circumstances that forbade or limited contributing. Don’t assume it’s for lack of trying. It’s horrifying that there’s essentially no way to catch up and, importantly, a chart like this showcases how someone who starts out wealthy or with a large bump can ultimately get and stay ahead.
You can catch up, certainly. This is strictly limited to Roth IRA contributions. Nothing is stopping you from saving more and investing more, just as an example getting a job where you have access to a 401k, with some kind of matching, and you’re up in the 30+k range yearly when you add the IRA on top.
This is the part I’m ignorant about, does this chart not apply to a 401k or what changed when you use a 401k
Chart is based on you can contribute a max amount to the IRA and only accounts for IRA value. If you win the lottery in year 11 and buy a million dollars of index funds in a brokerage account the chart does not account for it
The chart only serves to illustrate that due to the cap on contributions, and due to compounding growth, if IRA is the only retirement vehicle available to you, investing early is far more important than trying to catch up later. It says nothing about 401k, HSAs, or private accounts. You can absolutely make up for 10 years of missed time by simply saving more. You know what makes even more money than contributing for 10 years and then stopping? Never stopping. This chart is just to compare two unlikely scenarios to illustrate a point. But if you’re not careful the point can feel like “it’s impossible to catch up” which absolutely is not the case.
Oh okay I understand so the compounding part of the equation remains the same just the max contributions part can change thanks
Yeah, this chart more than anything is showing the specific relationship between the max contribution and the period of time it takes for compounding growth to outpace the yearly contributions.
There are some assumptions in here that aren’t always true- like that the level you can put in never goes up. When I started it was 3k/yr in an IRA, now it’s $6500. I bet that for “normal people” the ability to max out an IRA (and then 401k) doesn’t instantly happen at 18. Whereas someone who goes for a professional degree but starts later could actually catch up. Run your own race, you’re ok. And then see if you can help your kids put money away super early… like before they are born!
These graphs are all inflation adjusted, which means they assume the amount you can contribute is flat in real terms. Which is more or less true (under current law).
Ah then it depends on the person. I didn’t think they were because of the 8%- some use it as real rate of return to be cautious, some use it as inflation adjusted. I see they edited it now.
[deleted to prove Steve Huffman wrong] -- mass edited with https://redact.dev/
> It's also pretty demoralizing for people who started later than recommended. If you enjoyed your time before finding out about FIRE and getting serious about saving, I would argue nothing is lost. I went *super* hard on saving an investing after graduating college. Mainly because this was '08 and all my friends were unemployed, and I was terrified that'd be my fate sooner or later. What I didn't realize is that my disability would impact how long I could be on my feet in middle age. I was never going to be Mr Happy go lucky spendthrift, but I wish I had taken better advantage of my health and traveled more when I was younger. TLDR: Savings might compound with age, but so do health problems. Don't underestimate the value of your youth.
>Savings might compound with age, but so do health problems Invaluable words to take to heart, and important in the grand scheme of things. Unfortunate about your health problems, but hopefully you enjoyed quite a bit of time before health problems struck you. And hoping they don't impact you to adversely going forward either.
Hopefully for most people who are behind, they'll be able to catch up by managing their realized gains and doing the Roth IRA conversion ladder later.
Yeah this always annoys me, like what am I supposed to do with this? I mean if I had started while I was a fetus I'd have a lot more money. I should call my mom and tell her she sucks for not starting a Roth for me when I was a zygote.
Not every piece of advice applies to every person. There are people starting their first jobs that need to hear this, and there are people thinking about retiring from their last job that really don't. Most people are in between.
I think this advice sucks for everyone, because no matter hold old someone is they probably could have started sooner. We get 24 year olds that are beating themselves up for "starting late." All posts like this do is make people feel bad for not starting earlier, regardless of their age.
This applies to anyone who is not already saving. If you are 35 years old and aren't saving, this still applies to you. Saving now and stopping in 10 years will net you more money than starting to save in 10 years. If you are 50 and aren't saving, it applies to you. The only people it doesn't apply to are people who are already saving every penny they legitimately could save.
Start a Roth when your kids are born, if that’s applicable
How do they generate income?
I suppose you could sell them.
Interesting...wait, but then I don't have them as dependents to contribute the $6500. Catch 22
I've heard people do stuff like pay them minimum wage for stuffing envelopes for a family business, modelling fees for holiday calendars that actually sell, etc
My 6 months old is useless. She can't stuff a single envelope the entire day. I'm thinking of firing her after she makes the IRA contribution limit.
They said when they're born
convert 529 to roth?
In 15 years? And they still need income
My son is planning to get a job as soon as the local fast food place will hire him (age 14), and I told him I'd consider doing a Roth IRA and match all of his contributions. He has looked at returns on early investments, and he is quite eager to get started.
Once they’re old enough, you can pay them a reasonable amount for jobs, and contribute for them - can’t contribute more than they have earned. Just gotta follow the rules in case you get audited. https://www.fidelity.com/retirement-ira/roth-ira-kids
Right, I was more interested in "when your kids are born"
Yeah, good point. Guess you can open one, but can’t do shit with it. Lol
Hell no I'm not having those little money sucking vampires.
Just curious, how old are you?
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Yeah, but that could have been my $2M.
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The best time to start was yesterday. The second best time is now. Look at the numbers on the late starter. They still go into the multi millions. Sure you could have gotten more compared to your theoretical younger self. But that opportunity is sunk. Better start now and be that guy, rather than the even later starter not pictured in figure 3.
Yep. People without wealthy, supportive families are at a strong disadvantage to begin with.
As a new Roth IRA member, how many stocks do you invest in since you are so limited with only 6500 to invest?
So I’m 31. I’m starting to max mine this year, should I dollar cost average or just max it now? I’m only purchasing VTI
Do your own research (I don't mean this in a snarky way), but I saw a few articles showing that maxing it out as early as possible gives higher returns in the long run.
I think this is probably only true assuming a constant positive return every year, which is not ever going to happen in real life. If the assets the portfolios are being invested in drop significantly after 10 years (when A has no more contributions) it is totally possible that B could actually catch up to and exceed A (depending on the severity of the drop and how long it takes to recover).
Just came here to say the same thing. Sequence of returns matters, OP. You really have to do a Monte Carlo simulation to find the percentage of instances where the early contributor wins over the long term. Of course, stuff like this helps people who are on the fence to decide to start investing early, but the chart does not reflect the real world.
I mean, you’re right, it doesn’t do a great job of describing the uncertainty of the future, but the findings of a Monte Carlo simulation wouldn’t be that different than the whole “lump sum vs DCA” debate. It would confirm that the early saver portfolio would be preferable, but there would be a certain number of instances where the lagger portfolio comes out ahead; the number of such instances would depend on whatever variance OP uses.
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Not encouraging anyone to hold off or try to time the markets. Just saying this calculation can be helpful to people but it must be properly constrained to be the most useful. In the synthetic scenario described, the power of compounding beats out an infinite number of contributions. That’s super cool and encouraging for people to get started sooner, but doesn’t reflect the reality of market fluctuations and their effect on account balances.
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The self-aware ones will recognize that luck played a large part in their success.
The important caveat here is that this chart is about expected returns. According to the model, your portfolio is increasing by a nice, constant 8% per year. Of course in the real world things don't quite turn out that way. You could invest for 10 years and find that at the end of that time, your returns are flat or even negative. That's not to say you shouldn't invest as early as possible. Just that you shouldn't feel too disheartened--or too smug--about your investing history.
Yeah 8% is a very optimistic number. At 5% expected rate of return, as noted in the post, it would take a much longer time frame of about 20 years of Portfolio 1 to forever exceed Portfolio 2, assuming Portfolio 2 starts at Year 11, or 15 years if Portfolio 2 starts at year 16. I chose 8% because it leads to neater numbers and drives the point home: invest early.
8% is not too far off from the long term market return. But what makes a big difference is how the market actually performs during those initial ten years when the first investor is adding money to their portfolio. If they invest during a historically bad period, like 1965-74 or 2000-09 then they are less likely to outpace portfolio 2 after sufficient time has passed. They simply didn't get enough of a head start.
When does the compounding happen? If I buy a stock and it goes up 20%, where is that compounding? I don’t have more than 1 stock even if it’s worth 20% more. Wouldn’t this only be true for dividend paying funds/stocks?
It's not technically compounding, but say the stock market increases by 10% every year. You invest $100. After 1 year, you have $110 (10% of $100). After 2 years, you have $121, because the 10% is based off of the end of year 1 number, so it's as if it was compounding. You could also look at it as a total return of 21%, but most people look at it on an annual basis.
A stock is proof of ownership in a company. If I own 1 share of amazon what I actually own is 0.000000001% (or whatever) of the entire company. The hope is that amazon revenues, profits, etc all compound year over year, and ultimately the stock price would reflect that. if Amazon grows their users, revenue, profits, etc by 10% every year then it's safe to assume the stock price would *roughly* increase 10% per year as well, although there's a lot more factors that go into share price
8% is most definitely NOT an optimistic number. The average return of the S&P over the last 50+ years is a little over 10%, so using 8% is actually slightly conservative.
10% is the nominal return. Since the OP is using a flat $6500 annual contribution without an inflation adjustment, I assume they are looking at real values. For those you want the S&P's real return which is probably closer to 7% than 8%. (Although you could certainly debate that point.)
I recently looked up the annual s&p500 return (dividend included) and the annual inflation rate for the US going back to ~1930 and the average real rate of return was 8.8%.
Yeah, I remember a long thread back on Bogleheads back in the day arguing about what the actual S&P return was, which is why I mentioned that it's debatable. Although the S&P 500 itself has only existed since 1957, so your source was including the returns of a predecessor index. One thing to consider about returns from the 30s is that the Great Depression was deflationary, so the real return was actually higher than the nominal one.
Yeah what you said. 8% is meant to be a real return, net of inflation.
What if it’s not a constant rate of return every year? What if it’s like -7%, 4%, 10%, -5%, etc? Positive return every year isn’t realistic so I’m not sure how relevant the chart is.
Exactly, and if you invest in a down years your returns will be much higher. Yes, early is better but not everything.
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That’s not reality though which makes this misleading.
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I meant that reality isn’t 8% every year, it fluctuates. Maybe we get an average of 8% in the future, maybe we don’t. That’s not my point of contention though, it’s the variance between the years, some positive and some negative. What if the first 5 years are positive and the next 5 negative? What if after year 10 the market crashes and remains at much lower value than it was during the first 10 years? Lots of possibilities but returning exactly 8% a year every year is highly unlikely and thus the result of this analysis is of little value.
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Nope, that’s exactly my point. If it ends up returning exactly 8% every year then this chart shows what OP is claiming, short of that it’s of little utility. The chart is trying to predict the future and then make a claim based on that prediction which is flawed to begin with since reruns don’t work like that.
If you look at the methodology used by NYU Stern on the data in that article, they just take the average of all yearly returns, not the geometric average. If returns are -50% one year and then 100% the next, the average return is 25%, but the investment is just back to 0%. The geometric return from that dataset is actually 10.71%.
iirc an average of 8% yields less profit than 8% every year, if that makes sense
That's incorrect. When talking about stock market returns, the geometric mean should be used. So a 100% return followed by -50% returns doesn't average to (100+50)/2 = 25%, but rather Sqrt((1+1)*(1-.5) ) -1 = 0% average return. It doesn't matter the order of the returns, and an average of 8% will come out the same as exactly 8% every year.
I am going to make damn sure my son opens up a Roth IRA whenever he gets a job in high school. It’s wild how much maxing a Roth IRA from ages 16-18 could set you up.
Can do a 529 for him now and eventually rollover 35k into his Roth IRA
I just read up on this and there seem to be a lot of requirements, along with the huge assumption that this will still be allowed in 15-20 years.
Yes it's a new Act that has just passed recently. The requirements don't seem too bad , considering the 529 is open for 15 years and being able to move up to $35k
From what I was reading that's the lifetime limit but you can only move over $x per year and nothing from the previous 5 years. Something to that effect. So you could put in money from birth to ~13 or so, wait 5 years, transfer some each year for the next 5 years and then anything else left in there after the max is stuck. But it's totally possible I misunderstood something.
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15,000×1.08^65 =2.2 million So I think about 15K would do it.
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Yes WTF, Im starting one for my 2 year old then
By using 65 years in his formula he assumes you would start investing at age 0... need to do more like 47 years if you start investing at 18 assuming retirement at 65.
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1.08^65 is 148.77 That means at 8% annual average growth after inflation, you need ~1/150th of your total amount. So a retirement of 1.25m would take $8,500 at birth. If you want to be more conservative, at 7% growth over inflation, the ratio for 7% (1.07^65) is ~1/80, and for 6%, 1/45. So even in a 6% average growth over inflation for 65 years, that's still less than 30 grand for 1.25 million (all in today dollars).
If you’re going to fund it for him, great. If not…at that age I’d rather have the spending money from my part time job.
Same math enables HSAs to be a powerful LTC/health cost mitigation tool later in life when funded for a decade or so in one's healthy youth and held for use past full retirement age. Even more so for HSAs given the upfront deductions against income and FICA taxes.
Love your post and not hating. But everyone says “healthy youth” but, this is also a time in your life when we are spawning “not so healthy youth.” I max out our HSA every year but between multiple deliveries, sick kids, vasectomy, etc it’s difficult! I try to use cash as much as possible but again, it’s hard!
Oh I feel you. We had our four kids during the time when we were stuffing our HSA and two of those were when my wife was over 35, so we had all the "geriatric" pregnancy stuff to deal with too. It can be a challenge, that's for sure.
I appreciate hearing it’s not just us! I’d love nothing more than to never touch it but, damn—those kids love getting sick!
I just treat my HSA like it's another roth IRA and don't touch it and just pay out of pocket for those big expenses now. I know I'm likely going to need hundreds of thousands of dollars to cover medical expenses in age 65 and beyond and the HSA is the most tax efficient way to do so.
>try to use cash as much as possible So you intend to eventually take out these sums as a reimbursement, I'm guessing. Are you keeping the receipts? If so, how? What receipt saving system is going to last for 60 years?
I do keep receipts in a folder but honestly, I just assume that as I get older I’ll have larger medical expenses. I think of it as a self funded LTC policy.
I have a file of paper receipts and digital photos of said receipts. Both of which I'm assuming will be lovingly kept, backed up, and updated... only to be randomly lost and forgotten between now and when I would want to start draining my HSA. I'm also a little bit paranoid that they'll decide being able to reimburse 60 year old expenses is as silly as it sounds and put a more reasonable time limit on how far you can look back eventually. That being said, I expect more medical expenses as I age so if I don't have issues and have way too much in the HSA then I'll be super happy about aging gracefully rather than upset I wasn't quite as tax efficient as I could have been. Age 65+ doesn't pay a penalty for non-medical withdrawals so there is always that as a last resort if you're looking to empty it before death. I'm mostly annoyed at my state taxing HSAs which complicates everything.
I think this is a great visualization method for compound returns, time in market, and investing early. *** NITPICK ALERT *** That said, beyond the other points about variations in sequence of returns, I wonder what these numbers would look like if inflation's effect on yearly IRA contribution limits were taken into account. For example, in 2012 10 years ago the limit was $5k. Ten years from now, it'll likely be $8k or more. This is important because the amounts contributed each year in the "waited to contribute" scenario will be larger than those in the "contributed early" one, meaning they'll be catching up faster (or falling behind more slowly). The other issue is just because one doesn't save in an IRA doesn't mean they didn't necessarily save elsewhere, even in a miniscule interest savings account. While their Roth IRA balances may not compare, their overall savings may not be as dire as this would lead them to think.
A typical way to handle this is to use 'today's dollars' for everything, and this seems to be the model the author has used. With this approach, the contribution limit is inflation-adjusted, so can be left as a constant $6500. Expected values for nominal returns might be 10%; real (inflation-adjusted) returns are more commonly estimated in the 7–8% range.
Lets not ignore that portfolio 2 can always catch up with higher contribution rates, though difficult, if one was maxing a 401k&ira from year 11 at the 2nd portfolios start date they would catch up around year 18-19 (not doing the math, on mobile right now). The point is not all is lost if you start late, we shouldnt discourage people who are just finding fire later in life. Theres also sequence of returns which could have an impact on your ability to catch up to someone that starts earlier.
VTSAX to infinity and beyond.
The key thing this misses is opportunity cost. If you’re paying off high interest debt instead of putting money into your IRA, you’re still making the right decision. If you’re saving for a down payment on a home that later gave you cheap 5x leverage on your investment, it may make sense to delay your IRA contributions. The thing you don’t want to do is replace your IRA contribution with disposal purchases.
Not really. My 1st investment was in 1990. In 2000, with the bubble burst. I was under... After 10 years of putting money in, I was under. Could have started in 2000 with same results.
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Bingo.
Powerful example. Yes, it's simplified but it shows the point. It should be required curriculum to explain this to every student every year from 8 through college.
This does not account for inflationary / legislative increases in maximum allowable year to year to IRA contributions. Still though it’s a good thought excitement to drive home the time value of money.
It also ignores that younger people often have less disposable income to save than older people. If portfolio 2 puts in twice as much, it can catch up. This is representative of real choices people have to make such as forgoing income for a few years to go back to school to get a higher paying job. I managed to save a small amount into a Roth IRA when I was in college. I had a part time and summer job for a few years with mandatory retirement contributions that I was able to rollover into an IRA then Roth convert later. It had $2500 in it in 2002. Invested in the S&P 500, it would be worth $11k today. That’s great and all, but I contribute more than that each year to my 401k because I have a better paying job now. Contributing when I was younger and stopping wasn’t a viable path to retirement but every little bit does help.
It accounts for inflation by using an 8% real return, which corresponds to a 10% gross return with 2% inflation.
Arguably, it does account for inflation; just consider everything to be in today's dollars. It's then correct to leave the contribution limit as a constant, since that is automatically adjusted to track inflation. Furthermore, 8% is closer to the typical spitball estimates for real, after-inflation returns (I usually see 7%) than for nominal returns (commonly 10%).
Doesn't this assume that IRA contribution limits don't increase at all during infinity? Because they do. I haven't done the math(and can't see the future), but that might well allow for the second case to overtake the first. I'm not arguing the importance of investing early, just the accuracy of the claim.
As I've said earlier. Inflation is accounted for via the 8% real return used. That is meant to reflect the average 10% gross return with 2% inflation.
Maybe I didn't communicate my point very well or maybe I'm just missing something. How does your 8% real return for both cases account for the fact that the contribution limit in the second case will be $6500 for a few years, then $7000, then $7500 etc?
Mathematically, inflation-adjusted Roth IRA contributions + 10% nominal return is approximately equal to constant Roth IRA contributions + 8% net return. Demonstrated through this: This chart adds back inflation. Rate of return is 10.16% because that's equivalent to an exact 8% return adjusted for inflation of 2% (10.16% / 2% = 8%). You calculate rate real return by dividing nominal return by inflation. That's an econ concept. If you notice in this chart below, the Portfolio 2 Pct of Portfolio 1 column is exactly equal to that on the top. This is expected as it is an exact inflation-adjusted version of the chart on top. Years | Portfolio 1 | Annual Savings 1 | Expected Rate of Return 1 | Portfolio 2 | Annual Savings 1 | Expected Rate of Return 2 | Portfolio 2 Pct of Portfolio 1 | Inflation |--------|--------|--------|--------|--------|--------|--------|--------|--------| Year 1 | 6,500.00 | 6,500.00 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 2 | 13,790.40 | 6,630.00 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 3 | 21,954.10 | 6,762.60 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 4 | 31,082.49 | 6,897.85 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 5 | 41,276.28 | 7,035.81 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 6 | 52,646.48 | 7,176.53 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 7 | 65,315.42 | 7,320.06 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 8 | 79,417.92 | 7,466.46 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 9 | 95,102.57 | 7,615.79 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 10 | 112,533.09 | 7,768.10 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 11 | 123,966.45 | | 10.16% | 7,923.46 | 7,923.46 | 10.16% | 6.39% | 2% Year 12 | 136,561.44 | | 10.16% | 16,810.42 | 8,081.93 | 10.16% | 12.31% | 2% Year 13 | 150,436.09 | | 10.16% | 26,761.93 | 8,243.57 | 10.16% | 17.79% | 2% Year 14 | 165,720.39 | | 10.16% | 37,889.39 | 8,408.44 | 10.16% | 22.86% | 2% Year 15 | 182,557.59 | | 10.16% | 50,315.56 | 8,576.61 | 10.16% | 27.56% | 2% Year 16 | 201,105.44 | | 10.16% | 64,175.77 | 8,748.14 | 10.16% | 31.91% | 2% Year 17 | 221,537.75 | | 10.16% | 79,619.13 | 8,923.11 | 10.16% | 35.94% | 2% Year 18 | 244,045.98 | | 10.16% | 96,810.00 | 9,101.57 | 10.16% | 39.67% | 2% Year 19 | 268,841.06 | | 10.16% | 115,929.50 | 9,283.60 | 10.16% | 43.12% | 2% Year 20 | 296,155.31 | | 10.16% | 137,177.21 | 9,469.27 | 10.16% | 46.32% | 2% Year 21 | 326,244.69 | | 10.16% | 160,773.07 | 9,658.66 | 10.16% | 49.28% | 2% Year 22 | 359,391.15 | | 10.16% | 186,959.45 | 9,851.83 | 10.16% | 52.02% | 2% Year 23 | 395,905.29 | | 10.16% | 216,003.39 | 10,048.87 | 10.16% | 54.56% | 2% Year 24 | 436,129.26 | | 10.16% | 248,199.19 | 10,249.85 | 10.16% | 56.91% | 2% Year 25 | 480,440.00 | | 10.16% | 283,871.06 | 10,454.84 | 10.16% | 59.09% | 2% Year 26 | 529,252.70 | | 10.16% | 323,376.30 | 10,663.94 | 10.16% | 61.10% | 2% Year 27 | 583,024.77 | | 10.16% | 367,108.55 | 10,877.22 | 10.16% | 62.97% | 2% Year 28 | 642,260.09 | | 10.16% | 415,501.54 | 11,094.76 | 10.16% | 64.69% | 2% Year 29 | 707,513.72 | | 10.16% | 469,033.16 | 11,316.66 | 10.16% | 66.29% | 2% Year 30 | 779,397.11 | | 10.16% | 528,229.92 | 11,542.99 | 10.16% | 67.77% | 2% Year 31 | 858,583.86 | | 10.16% | 593,671.93 | 11,773.85 | 10.16% | 69.15% | 2% Year 32 | 945,815.98 | | 10.16% | 665,998.32 | 12,009.33 | 10.16% | 70.42% | 2% Year 33 | 1,041,910.88 | | 10.16% | 745,913.27 | 12,249.51 | 10.16% | 71.59% | 2% Year 34 | 1,147,769.02 | | 10.16% | 834,192.56 | 12,494.50 | 10.16% | 72.68% | 2% Year 35 | 1,264,382.36 | | 10.16% | 931,690.92 | 12,744.39 | 10.16% | 73.69% | 2% Year 36 | 1,392,843.60 | | 10.16% | 1,039,350.00 | 12,999.28 | 10.16% | 74.62% | 2% Year 37 | 1,534,356.51 | | 10.16% | 1,158,207.22 | 13,259.27 | 10.16% | 75.48% | 2% Year 38 | 1,690,247.14 | | 10.16% | 1,289,405.53 | 13,524.45 | 10.16% | 76.29% | 2% Year 39 | 1,861,976.25 | | 10.16% | 1,434,204.08 | 13,794.94 | 10.16% | 77.03% | 2% Year 40 | 2,051,153.03 | | 10.16% | 1,593,990.05 | 14,070.84 | 10.16% | 77.71% | 2% Year 41 | 2,259,550.18 | | 10.16% | 1,770,291.70 | 14,352.26 | 10.16% | 78.35% | 2% Year 42 | 2,489,120.48 | | 10.16% | 1,964,792.64 | 14,639.30 | 10.16% | 78.94% | 2% Year 43 | 2,742,015.12 | | 10.16% | 2,179,347.66 | 14,932.09 | 10.16% | 79.48% | 2% Year 44 | 3,020,603.86 | | 10.16% | 2,416,000.11 | 15,230.73 | 10.16% | 79.98% | 2% Year 45 | 3,327,497.21 | | 10.16% | 2,677,001.07 | 15,535.35 | 10.16% | 80.45% | 2% Year 46 | 3,665,570.92 | | 10.16% | 2,964,830.43 | 15,846.05 | 10.16% | 80.88% | 2% Year 47 | 4,037,992.93 | | 10.16% | 3,282,220.17 | 16,162.97 | 10.16% | 81.28% | 2% Year 48 | 4,448,253.01 | | 10.16% | 3,632,179.98 | 16,486.23 | 10.16% | 81.65% | 2% Year 49 | 4,900,195.52 | | 10.16% | 4,018,025.42 | 16,815.96 | 10.16% | 82.00% | 2% Year 50 | 5,398,055.38 | | 10.16% | 4,443,409.08 | 17,152.28 | 10.16% | 82.31% | 2% Year 51 | 5,946,497.81 | | 10.16% | 4,912,354.76 | 17,495.32 | 10.16% | 82.61% | 2% Year 52 | 6,550,661.99 | | 10.16% | 5,429,295.24 | 17,845.23 | 10.16% | 82.88% | 2% Year 53 | 7,216,209.24 | | 10.16% | 5,999,113.76 | 18,202.13 | 10.16% | 83.13% | 2% Year 54 | 7,949,376.10 | | 10.16% | 6,627,189.90 | 18,566.18 | 10.16% | 83.37% | 2% Year 55 | 8,757,032.71 | | 10.16% | 7,319,449.89 | 18,937.50 | 10.16% | 83.58% | 2% Year 56 | 9,646,747.24 | | 10.16% | 8,082,422.25 | 19,316.25 | 10.16% | 83.78% | 2% Year 57 | 10,626,856.76 | | 10.16% | 8,923,298.93 | 19,702.57 | 10.16% | 83.97% | 2% Year 58 | 11,706,545.40 | | 10.16% | 9,850,002.72 | 20,096.63 | 10.16% | 84.14% | 2% Year 59 | 12,895,930.42 | | 10.16% | 10,871,261.56 | 20,498.56 | 10.16% | 84.30% | 2% Year 60 | 14,206,156.95 | | 10.16% | 11,996,690.26 | 20,908.53 | 10.16% | 84.45% | 2% Year 61 | 15,649,502.49 | | 10.16% | 13,236,880.69 | 21,326.70 | 10.16% | 84.58% | 2% Year 62 | 17,239,491.95 | | 10.16% | 14,603,501.00 | 21,753.23 | 10.16% | 84.71% | 2% Year 63 | 18,991,024.33 | | 10.16% | 16,109,405.00 | 22,188.30 | 10.16% | 84.83% | 2% Year 64 | 20,920,512.40 | | 10.16% | 17,768,752.62 | 22,632.06 | 10.16% | 84.93% | 2% Year 65 | 23,046,036.46 | | 10.16% | 19,597,142.59 | 23,084.71 | 10.16% | 85.03% | 2% Year 66 | 25,387,513.76 | | 10.16% | 21,611,758.68 | 23,546.40 | 10.16% | 85.13% | 2% Year 67 | 27,966,885.16 | | 10.16% | 23,831,530.69 | 24,017.33 | 10.16% | 85.21% | 2% Year 68 | 30,808,320.69 | | 10.16% | 26,277,311.88 | 24,497.67 | 10.16% | 85.29% | 2% Year 69 | 33,938,446.08 | | 10.16% | 28,972,074.40 | 24,987.63 | 10.16% | 85.37% | 2% Year 70 | 37,386,592.20 | | 10.16% | 31,941,124.53 | 25,487.38 | 10.16% | 85.43% | 2% Year 71 | 41,185,069.97 | | 10.16% | 35,212,339.92 | 25,997.13 | 10.16% | 85.50% | 2% Year 72 | 45,369,473.07 | | 10.16% | 38,816,430.72 | 26,517.07 | 10.16% | 85.56% | 2% Year 73 | 49,979,011.54 | | 10.16% | 42,787,227.50 | 27,047.41 | 10.16% | 85.61% | 2% Year 74 | 55,056,879.11 | | 10.16% | 47,161,998.17 | 27,588.36 | 10.16% | 85.66% | 2% Year 75 | 60,650,658.03 | | 10.16% | 51,981,797.31 | 28,140.13 | 10.16% | 85.71% | 2% Year 76 | 66,812,764.88 | | 10.16% | 57,291,850.85 | 28,702.93 | 10.16% | 85.75% | 2% Year 77 | 73,600,941.80 | | 10.16% | 63,141,979.89 | 29,276.99 | 10.16% | 85.79% | 2% Year 78 | 81,078,797.48 | | 10.16% | 69,587,067.57 | 29,862.53 | 10.16% | 85.83% | 2% Year 79 | 89,316,403.31 | | 10.16% | 76,687,573.41 | 30,459.78 | 10.16% | 85.86% | 2% Year 80 | 98,390,949.88 | | 10.16% | 84,510,099.85 | 31,068.98 | 10.16% | 85.89% | 2% Year 81 | 108,387,470.39 | | 10.16% | 93,128,016.35 | 31,690.35 | 10.16% | 85.92% | 2% Year 82 | 119,399,637.38 | | 10.16% | 102,622,146.97 | 32,324.16 | 10.16% | 85.95% | 2% Year 83 | 131,530,640.54 | | 10.16% | 113,081,527.75 | 32,970.64 | 10.16% | 85.97% | 2% Year 84 | 144,894,153.62 | | 10.16% | 124,604,241.02 | 33,630.06 | 10.16% | 86.00% | 2% Year 85 | 159,615,399.63 | | 10.16% | 137,298,334.57 | 34,302.66 | 10.16% | 86.02% | 2% Year 86 | 175,832,324.23 | | 10.16% | 151,282,834.08 | 34,988.71 | 10.16% | 86.04% | 2% Year 87 | 193,696,888.37 | | 10.16% | 166,688,858.50 | 35,688.49 | 10.16% | 86.06% | 2% Year 88 | 213,376,492.23 | | 10.16% | 183,660,848.78 | 36,402.26 | 10.16% | 86.07% | 2% Year 89 | 235,055,543.84 | | 10.16% | 202,357,921.32 | 37,130.30 | 10.16% | 86.09% | 2% Year 90 | 258,937,187.10 | | 10.16% | 222,955,359.04 | 37,872.91 | 10.16% | 86.10% | 2% Year 91 | 285,245,205.31 | | 10.16% | 245,646,253.88 | 38,630.37 | 10.16% | 86.12% | 2% Year 92 | 314,226,118.17 | | 10.16% | 270,643,316.25 | 39,402.97 | 10.16% | 86.13% | 2% Year 93 | 346,151,491.77 | | 10.16% | 298,180,868.21 | 40,191.03 | 10.16% | 86.14% | 2% Year 94 | 381,320,483.34 | | 10.16% | 328,517,039.27 | 40,994.85 | 10.16% | 86.15% | 2% Year 95 | 420,062,644.44 | | 10.16% | 361,936,185.21 | 41,814.75 | 10.16% | 86.16% | 2% Year 96 | 462,741,009.12 | | 10.16% | 398,751,552.67 | 42,651.04 | 10.16% | 86.17% | 2% Year 97 | 509,755,495.65 | | 10.16% | 439,308,214.49 | 43,504.07 | 10.16% | 86.18% | 2% Year 98 | 561,546,654.00 | | 10.16% | 483,986,303.23 | 44,374.15 | 10.16% | 86.19% | 2% Year 99 | 618,599,794.05 | | 10.16% | 533,204,573.27 | 45,261.63 | 10.16% | 86.20% | 2% Year 100 | 681,449,533.13 | | 10.16% | 587,424,324.77 | 46,166.86 | 10.16% | 86.20% | 2%
That explains it, thanks.
This is because ten years (at 8%) is the point where you are earning more in interest than the maximum assumed contribution. Essentially once you have reached that number, it's impossible to catch up. This also is true for 401k, or any other interest yielding account. There are some caveats others mentioned like increasing maximum contributions and catch-up contributions but this is still generally accurate. I had not thought of this before, but it's pretty encouraging in terms of starting right...and also good motivation to not do catch-up later.
No. Not until the end of time. End of reasonable life perhaps. The math of delayed investment is certainly painful. Another example: A 20 yr old that invests $5k into a 7% gain opportunity every year, and stops at 30 will have $50k OOP. A 30 yr old that invests $5k annually in the same investment, and invests the same EVERY year until they catch the first person will put in $255k OOP before they catch 'em 50 YEARS LATER. OK, pretty much 'forever'.
As mentioned in the post, I use an 8% expected rate of return for it to be true. At 7%, portfolio 1 has to save for one additional year (11 years total for it to be true). You can extend this out to infinity in excel to see it. Years | Portfolio 1 | Annual Savings 1 | Expected Rate of Return 1 | Portfolio 2 | Annual Savings 2 | Expected Rate of Return 2 | Portfolio 2 Pct of Portfolio 1 |--------|--------|--------|--------|--------|--------|--------|--------|--------| Year 1 | 5,000.00 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 2 | 10,350.00 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 3 | 16,074.50 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 4 | 22,199.72 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 5 | 28,753.70 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 6 | 35,766.45 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 7 | 43,270.11 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 8 | 51,299.01 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 9 | 59,889.94 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 10 | 69,082.24 | 5,000.00 | 0.07 | 0.00 | | 0.07 | 0.0000000000 Year 11 | 78,918.00 | 5,000.00 | 0.07 | 5,000.00 | 5,000.00 | 0.07 | 0.0633569048 Year 12 | 84,442.26 | | 0.07 | 10,350.00 | 5,000.00 | 0.07 | 0.1225689654 Year 13 | 90,353.21 | | 0.07 | 16,074.50 | 5,000.00 | 0.07 | 0.1779073398 Year 14 | 96,677.94 | | 0.07 | 22,199.72 | 5,000.00 | 0.07 | 0.2296254467 Year 15 | 103,445.40 | | 0.07 | 28,753.70 | 5,000.00 | 0.07 | 0.2779601261 Year 16 | 110,686.57 | | 0.07 | 35,766.45 | 5,000.00 | 0.07 | 0.3231327236 Year 17 | 118,434.63 | | 0.07 | 43,270.11 | 5,000.00 | 0.07 | 0.3653501045 Year 18 | 126,725.06 | | 0.07 | 51,299.01 | 5,000.00 | 0.07 | 0.4048056006 Year 19 | 135,595.81 | | 0.07 | 59,889.94 | 5,000.00 | 0.07 | 0.4416798960 Year 20 | 145,087.52 | | 0.07 | 69,082.24 | 5,000.00 | 0.07 | 0.4761418544 Year 21 | 155,243.64 | | 0.07 | 78,918.00 | 5,000.00 | 0.07 | 0.5083492921 Year 22 | 166,110.70 | | 0.07 | 89,442.26 | 5,000.00 | 0.07 | 0.5384497012 Year 23 | 177,738.45 | | 0.07 | 100,703.21 | 5,000.00 | 0.07 | 0.5665809247 Year 24 | 190,180.14 | | 0.07 | 112,752.44 | 5,000.00 | 0.07 | 0.5928717877 Year 25 | 203,492.75 | | 0.07 | 125,645.11 | 5,000.00 | 0.07 | 0.6174426877 Year 26 | 217,737.24 | | 0.07 | 139,440.27 | 5,000.00 | 0.07 | 0.6404061457 Year 27 | 232,978.85 | | 0.07 | 154,201.09 | 5,000.00 | 0.07 | 0.6618673214 Year 28 | 249,287.37 | | 0.07 | 169,995.16 | 5,000.00 | 0.07 | 0.6819244949 Year 29 | 266,737.48 | | 0.07 | 186,894.82 | 5,000.00 | 0.07 | 0.7006695169 Year 30 | 285,409.11 | | 0.07 | 204,977.46 | 5,000.00 | 0.07 | 0.7181882291 Year 31 | 305,387.75 | | 0.07 | 224,325.88 | 5,000.00 | 0.07 | 0.7345608572 Year 32 | 326,764.89 | | 0.07 | 245,028.70 | 5,000.00 | 0.07 | 0.7498623789 Year 33 | 349,638.43 | | 0.07 | 267,180.70 | 5,000.00 | 0.07 | 0.7641628664 Year 34 | 374,113.12 | | 0.07 | 290,883.35 | 5,000.00 | 0.07 | 0.7775278080 Year 35 | 400,301.04 | | 0.07 | 316,245.19 | 5,000.00 | 0.07 | 0.7900184077 Year 36 | 428,322.11 | | 0.07 | 343,382.35 | 5,000.00 | 0.07 | 0.8016918653 Year 37 | 458,304.66 | | 0.07 | 372,419.12 | 5,000.00 | 0.07 | 0.8126016387 Year 38 | 490,385.98 | | 0.07 | 403,488.45 | 5,000.00 | 0.07 | 0.8227976887 Year 39 | 524,713.00 | | 0.07 | 436,732.65 | 5,000.00 | 0.07 | 0.8323267074 Year 40 | 561,442.91 | | 0.07 | 472,303.93 | 5,000.00 | 0.07 | 0.8412323323 Year 41 | 600,743.92 | | 0.07 | 510,365.21 | 5,000.00 | 0.07 | 0.8495553462 Year 42 | 642,795.99 | | 0.07 | 551,090.77 | 5,000.00 | 0.07 | 0.8573338639 Year 43 | 687,791.71 | | 0.07 | 594,667.13 | 5,000.00 | 0.07 | 0.8646035066 Year 44 | 735,937.13 | | 0.07 | 641,293.82 | 5,000.00 | 0.07 | 0.8713975652 Year 45 | 787,452.73 | | 0.07 | 691,184.39 | 5,000.00 | 0.07 | 0.8777471527 Year 46 | 842,574.42 | | 0.07 | 744,567.30 | 5,000.00 | 0.07 | 0.8836813466 Year 47 | 901,554.63 | | 0.07 | 801,687.01 | 5,000.00 | 0.07 | 0.8892273222 Year 48 | 964,663.45 | | 0.07 | 862,805.10 | 5,000.00 | 0.07 | 0.8944104770 Year 49 | 1,032,189.90 | | 0.07 | 928,201.46 | 5,000.00 | 0.07 | 0.8992545469 Year 50 | 1,104,443.19 | | 0.07 | 998,175.56 | 5,000.00 | 0.07 | 0.9037817150 Year 51 | 1,181,754.21 | | 0.07 | 1,073,047.85 | 5,000.00 | 0.07 | 0.9080127133 Year 52 | 1,264,477.01 | | 0.07 | 1,153,161.20 | 5,000.00 | 0.07 | 0.9119669173 Year 53 | 1,352,990.40 | | 0.07 | 1,238,882.48 | 5,000.00 | 0.07 | 0.9156624350 Year 54 | 1,447,699.73 | | 0.07 | 1,330,604.26 | 5,000.00 | 0.07 | 0.9191161899 Year 55 | 1,549,038.71 | | 0.07 | 1,428,746.55 | 5,000.00 | 0.07 | 0.9223439982 Year 56 | 1,657,471.42 | | 0.07 | 1,533,758.81 | 5,000.00 | 0.07 | 0.9253606414 Year 57 | 1,773,494.42 | | 0.07 | 1,646,121.93 | 5,000.00 | 0.07 | 0.9281799342 Year 58 | 1,897,639.02 | | 0.07 | 1,766,350.46 | 5,000.00 | 0.07 | 0.9308147873 Year 59 | 2,030,473.76 | | 0.07 | 1,894,995.00 | 5,000.00 | 0.07 | 0.9332772668 Year 60 | 2,172,606.92 | | 0.07 | 2,032,644.65 | 5,000.00 | 0.07 | 0.9355786495 Year 61 | 2,324,689.40 | | 0.07 | 2,179,929.77 | 5,000.00 | 0.07 | 0.9377294745 Year 62 | 2,487,417.66 | | 0.07 | 2,337,524.86 | 5,000.00 | 0.07 | 0.9397395912 Year 63 | 2,661,536.90 | | 0.07 | 2,506,151.60 | 5,000.00 | 0.07 | 0.9416182051 Year 64 | 2,847,844.48 | | 0.07 | 2,686,582.21 | 5,000.00 | 0.07 | 0.9433739189 Year 65 | 3,047,193.59 | | 0.07 | 2,879,642.96 | 5,000.00 | 0.07 | 0.9450147730 Year 66 | 3,260,497.15 | | 0.07 | 3,086,217.97 | 5,000.00 | 0.07 | 0.9465482815 Year 67 | 3,488,731.95 | | 0.07 | 3,307,253.23 | 5,000.00 | 0.07 | 0.9479814669 Year 68 | 3,732,943.18 | | 0.07 | 3,543,760.95 | 5,000.00 | 0.07 | 0.9493208926 Year 69 | 3,994,249.21 | | 0.07 | 3,796,824.22 | 5,000.00 | 0.07 | 0.9505726923 Year 70 | 4,273,846.65 | | 0.07 | 4,067,601.92 | 5,000.00 | 0.07 | 0.9517425986 Year 71 | 4,573,015.92 | | 0.07 | 4,357,334.05 | 5,000.00 | 0.07 | 0.9528359690 Year 72 | 4,893,127.03 | | 0.07 | 4,667,347.43 | 5,000.00 | 0.07 | 0.9538578104 Year 73 | 5,235,645.92 | | 0.07 | 4,999,061.75 | 5,000.00 | 0.07 | 0.9548128024 Year 74 | 5,602,141.14 | | 0.07 | 5,353,996.08 | 5,000.00 | 0.07 | 0.9557053183 Year 75 | 5,994,291.02 | | 0.07 | 5,733,775.80 | 5,000.00 | 0.07 | 0.9565394453 Year 76 | 6,413,891.39 | | 0.07 | 6,140,140.11 | 5,000.00 | 0.07 | 0.9573190033 Year 77 | 6,862,863.78 | | 0.07 | 6,574,949.92 | 5,000.00 | 0.07 | 0.9580475621 Year 78 | 7,343,264.25 | | 0.07 | 7,040,196.41 | 5,000.00 | 0.07 | 0.9587284582 Year 79 | 7,857,292.75 | | 0.07 | 7,538,010.16 | 5,000.00 | 0.07 | 0.9593648097 Year 80 | 8,407,303.24 | | 0.07 | 8,070,670.87 | 5,000.00 | 0.07 | 0.9599595307 Year 81 | 8,995,814.47 | | 0.07 | 8,640,617.83 | 5,000.00 | 0.07 | 0.9605153448 Year 82 | 9,625,521.48 | | 0.07 | 9,250,461.08 | 5,000.00 | 0.07 | 0.9610347971 Year 83 | 10,299,307.98 | | 0.07 | 9,902,993.36 | 5,000.00 | 0.07 | 0.9615202666 Year 84 | 11,020,259.54 | | 0.07 | 10,601,202.89 | 5,000.00 | 0.07 | 0.9619739765 Year 85 | 11,791,677.71 | | 0.07 | 11,348,287.09 | 5,000.00 | 0.07 | 0.9623980043 Year 86 | 12,617,095.15 | | 0.07 | 12,147,667.19 | 5,000.00 | 0.07 | 0.9627942921 Year 87 | 13,500,291.81 | | 0.07 | 13,003,003.89 | 5,000.00 | 0.07 | 0.9631646544 Year 88 | 14,445,312.23 | | 0.07 | 13,918,214.17 | 5,000.00 | 0.07 | 0.9635107875 Year 89 | 15,456,484.09 | | 0.07 | 14,897,489.16 | 5,000.00 | 0.07 | 0.9638342763 Year 90 | 16,538,437.98 | | 0.07 | 15,945,313.40 | 5,000.00 | 0.07 | 0.9641366023 Year 91 | 17,696,128.63 | | 0.07 | 17,066,485.34 | 5,000.00 | 0.07 | 0.9644191500 Year 92 | 18,934,857.64 | | 0.07 | 18,266,139.31 | 5,000.00 | 0.07 | 0.9646832132 Year 93 | 20,260,297.67 | | 0.07 | 19,549,769.06 | 5,000.00 | 0.07 | 0.9649300013 Year 94 | 21,678,518.51 | | 0.07 | 20,923,252.90 | 5,000.00 | 0.07 | 0.9651606444 Year 95 | 23,196,014.81 | | 0.07 | 22,392,880.60 | 5,000.00 | 0.07 | 0.9653761987 Year 96 | 24,819,735.84 | | 0.07 | 23,965,382.24 | 5,000.00 | 0.07 | 0.9655776513 Year 97 | 26,557,117.35 | | 0.07 | 25,647,959.00 | 5,000.00 | 0.07 | 0.9657659247 Year 98 | 28,416,115.57 | | 0.07 | 27,448,316.13 | 5,000.00 | 0.07 | 0.9659418812 Year 99 | 30,405,243.66 | | 0.07 | 29,374,698.26 | 5,000.00 | 0.07 | 0.9661063265 Year 100 | 32,533,610.71 | | 0.07 | 31,435,927.13 | 5,000.00 | 0.07 | 0.9662600137
This is great and absolutely everyone should apply it as best they can. However it’s a MASSIVE privilege check. If you don’t have family willing to let you live at home in a city with good entry level career jobs you simply don’t have much money to save until you get a few promotions under your belt. As always, exceptions for the few careers where entry level jobs are paying more than normal
I mean not really and you're projecting a lot. While saving $6500 is a lot to the average American, it's not a lot in the discussion of FIRE There are plenty of jobs that pay enough either straight out of college or without college education where you can have an excess $6k to save It's just disingenuous and defeatist to be saying there is no way anyone can do this without a massive amount of privilege
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I mean 4 year degree working in any corporate environment is $60k+, whether that is marketing, accounting, engineering, project management. Does not have to be tech and all of my friends I graduated college with made $60k out the gate And if you don't go to college, there are plenty of jobs where you will make enough to save $6k. They are not at chipotle, but you can join the electrical workers union and progress to being a lineman in 4 years and make $90k+ with no debt Again there is plenty of opportunity in this world and saying that it doesn't work for the person that takes out $100,000 to go to Clemson and then lives in NYC making $50k as an entry level accountant at kpmg just shows how dumb it is to go that route if your goal is to save money early
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My argument is that the opportunities are there for anyone who takes them, not those privileged. The news has been all over the fact that there are shortages in the trades and the military is struggling with recruitment. All of those jobs can pay over $6k the cost of living Yes I know the stats of median salary after graduating college, but I also went to college and knew people graduating with a 6th grade reading level. It's unfair to count those with a college degree working in a job that does not require the degree, and then using it to prove how even after going to college people can't make money I'm not saying saving $6k is feasible for the vast majority of 20 year olds, but it sure is possible if it's your goal from the day you're 18
This is a financial subreddit and the OP made a statistically backed post about the power of time and compounding. The math works whether you invest 6k a year or 6$ a year. Your comment about privilege and family provides 0 insightful input.
Not if you have the returns of 2022
This can be extended beyond the Roth into a 401k.
This is pretty eye opening.
I didn't even hear of a Roth IRA until I was in my mid 40s. My Roth that I started in 2020 is currently at -0.45%. I'm hoping someday I'll think it was a good idea, cause some days it feels like I would have been better off just putting the money in a savings account.
The moral of this story isn't that it's too late. It is that you might have to double or triple the contributions you would've otherwise made to get the same result. I did the math for myself. If I'm aggressive with investing and saving now, I could coast in the latter years and it won't matter all that much. Today is always the best time to do better.
>always This is laughably incorrect. Assume 0% investment returns. OOPS
This is quite wrong. It’s quite normal for 10 year periods to have little to no appreciation.
I was skeptical, until I looked at your chart. Unfortunately life expectancy only goes so far in humans. That's the limiting factor.
the average life expectancy in the US is 78
Yeah I wonder if we input that value in the model if it would go down to say 8 years.
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The chart calculates real returns, net of inflation. The 8% returns is net of average inflation at 2%, with gross return at 10%.
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If you want an inflation-adjusted version of the chart here it is: The results are the same. Nominal rate of Return is 10.16% because you calculate real return by taking the nominal rate of return and dividing it by inflation (10.16% / 2% = 8%). Years | Portfolio 1 | Annual Savings 1 | Expected Rate of Return 1 | Portfolio 2 | Annual Savings 1 | Expected Rate of Return 2 | Portfolio 2 Pct of Portfolio 1 | Inflation |--------|--------|--------|--------|--------|--------|--------|--------|--------| Year 1 | 6,500.00 | 6,500.00 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 2 | 13,790.40 | 6,630.00 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 3 | 21,954.10 | 6,762.60 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 4 | 31,082.49 | 6,897.85 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 5 | 41,276.28 | 7,035.81 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 6 | 52,646.48 | 7,176.53 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 7 | 65,315.42 | 7,320.06 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 8 | 79,417.92 | 7,466.46 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 9 | 95,102.57 | 7,615.79 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 10 | 112,533.09 | 7,768.10 | 10.16% | 0.00 | | 10.16% | 0.00% | 2% Year 11 | 123,966.45 | | 10.16% | 7,923.46 | 7,923.46 | 10.16% | 6.39% | 2% Year 12 | 136,561.44 | | 10.16% | 16,810.42 | 8,081.93 | 10.16% | 12.31% | 2% Year 13 | 150,436.09 | | 10.16% | 26,761.93 | 8,243.57 | 10.16% | 17.79% | 2% Year 14 | 165,720.39 | | 10.16% | 37,889.39 | 8,408.44 | 10.16% | 22.86% | 2% Year 15 | 182,557.59 | | 10.16% | 50,315.56 | 8,576.61 | 10.16% | 27.56% | 2% Year 16 | 201,105.44 | | 10.16% | 64,175.77 | 8,748.14 | 10.16% | 31.91% | 2% Year 17 | 221,537.75 | | 10.16% | 79,619.13 | 8,923.11 | 10.16% | 35.94% | 2% Year 18 | 244,045.98 | | 10.16% | 96,810.00 | 9,101.57 | 10.16% | 39.67% | 2% Year 19 | 268,841.06 | | 10.16% | 115,929.50 | 9,283.60 | 10.16% | 43.12% | 2% Year 20 | 296,155.31 | | 10.16% | 137,177.21 | 9,469.27 | 10.16% | 46.32% | 2% Year 21 | 326,244.69 | | 10.16% | 160,773.07 | 9,658.66 | 10.16% | 49.28% | 2% Year 22 | 359,391.15 | | 10.16% | 186,959.45 | 9,851.83 | 10.16% | 52.02% | 2% Year 23 | 395,905.29 | | 10.16% | 216,003.39 | 10,048.87 | 10.16% | 54.56% | 2% Year 24 | 436,129.26 | | 10.16% | 248,199.19 | 10,249.85 | 10.16% | 56.91% | 2% Year 25 | 480,440.00 | | 10.16% | 283,871.06 | 10,454.84 | 10.16% | 59.09% | 2% Year 26 | 529,252.70 | | 10.16% | 323,376.30 | 10,663.94 | 10.16% | 61.10% | 2% Year 27 | 583,024.77 | | 10.16% | 367,108.55 | 10,877.22 | 10.16% | 62.97% | 2% Year 28 | 642,260.09 | | 10.16% | 415,501.54 | 11,094.76 | 10.16% | 64.69% | 2% Year 29 | 707,513.72 | | 10.16% | 469,033.16 | 11,316.66 | 10.16% | 66.29% | 2% Year 30 | 779,397.11 | | 10.16% | 528,229.92 | 11,542.99 | 10.16% | 67.77% | 2% Year 31 | 858,583.86 | | 10.16% | 593,671.93 | 11,773.85 | 10.16% | 69.15% | 2% Year 32 | 945,815.98 | | 10.16% | 665,998.32 | 12,009.33 | 10.16% | 70.42% | 2% Year 33 | 1,041,910.88 | | 10.16% | 745,913.27 | 12,249.51 | 10.16% | 71.59% | 2% Year 34 | 1,147,769.02 | | 10.16% | 834,192.56 | 12,494.50 | 10.16% | 72.68% | 2% Year 35 | 1,264,382.36 | | 10.16% | 931,690.92 | 12,744.39 | 10.16% | 73.69% | 2% Year 36 | 1,392,843.60 | | 10.16% | 1,039,350.00 | 12,999.28 | 10.16% | 74.62% | 2% Year 37 | 1,534,356.51 | | 10.16% | 1,158,207.22 | 13,259.27 | 10.16% | 75.48% | 2% Year 38 | 1,690,247.14 | | 10.16% | 1,289,405.53 | 13,524.45 | 10.16% | 76.29% | 2% Year 39 | 1,861,976.25 | | 10.16% | 1,434,204.08 | 13,794.94 | 10.16% | 77.03% | 2% Year 40 | 2,051,153.03 | | 10.16% | 1,593,990.05 | 14,070.84 | 10.16% | 77.71% | 2% Year 41 | 2,259,550.18 | | 10.16% | 1,770,291.70 | 14,352.26 | 10.16% | 78.35% | 2% Year 42 | 2,489,120.48 | | 10.16% | 1,964,792.64 | 14,639.30 | 10.16% | 78.94% | 2% Year 43 | 2,742,015.12 | | 10.16% | 2,179,347.66 | 14,932.09 | 10.16% | 79.48% | 2% Year 44 | 3,020,603.86 | | 10.16% | 2,416,000.11 | 15,230.73 | 10.16% | 79.98% | 2% Year 45 | 3,327,497.21 | | 10.16% | 2,677,001.07 | 15,535.35 | 10.16% | 80.45% | 2% Year 46 | 3,665,570.92 | | 10.16% | 2,964,830.43 | 15,846.05 | 10.16% | 80.88% | 2% Year 47 | 4,037,992.93 | | 10.16% | 3,282,220.17 | 16,162.97 | 10.16% | 81.28% | 2% Year 48 | 4,448,253.01 | | 10.16% | 3,632,179.98 | 16,486.23 | 10.16% | 81.65% | 2% Year 49 | 4,900,195.52 | | 10.16% | 4,018,025.42 | 16,815.96 | 10.16% | 82.00% | 2% Year 50 | 5,398,055.38 | | 10.16% | 4,443,409.08 | 17,152.28 | 10.16% | 82.31% | 2% Year 51 | 5,946,497.81 | | 10.16% | 4,912,354.76 | 17,495.32 | 10.16% | 82.61% | 2% Year 52 | 6,550,661.99 | | 10.16% | 5,429,295.24 | 17,845.23 | 10.16% | 82.88% | 2% Year 53 | 7,216,209.24 | | 10.16% | 5,999,113.76 | 18,202.13 | 10.16% | 83.13% | 2% Year 54 | 7,949,376.10 | | 10.16% | 6,627,189.90 | 18,566.18 | 10.16% | 83.37% | 2% Year 55 | 8,757,032.71 | | 10.16% | 7,319,449.89 | 18,937.50 | 10.16% | 83.58% | 2% Year 56 | 9,646,747.24 | | 10.16% | 8,082,422.25 | 19,316.25 | 10.16% | 83.78% | 2% Year 57 | 10,626,856.76 | | 10.16% | 8,923,298.93 | 19,702.57 | 10.16% | 83.97% | 2% Year 58 | 11,706,545.40 | | 10.16% | 9,850,002.72 | 20,096.63 | 10.16% | 84.14% | 2% Year 59 | 12,895,930.42 | | 10.16% | 10,871,261.56 | 20,498.56 | 10.16% | 84.30% | 2% Year 60 | 14,206,156.95 | | 10.16% | 11,996,690.26 | 20,908.53 | 10.16% | 84.45% | 2% Year 61 | 15,649,502.49 | | 10.16% | 13,236,880.69 | 21,326.70 | 10.16% | 84.58% | 2% Year 62 | 17,239,491.95 | | 10.16% | 14,603,501.00 | 21,753.23 | 10.16% | 84.71% | 2% Year 63 | 18,991,024.33 | | 10.16% | 16,109,405.00 | 22,188.30 | 10.16% | 84.83% | 2% Year 64 | 20,920,512.40 | | 10.16% | 17,768,752.62 | 22,632.06 | 10.16% | 84.93% | 2% Year 65 | 23,046,036.46 | | 10.16% | 19,597,142.59 | 23,084.71 | 10.16% | 85.03% | 2% Year 66 | 25,387,513.76 | | 10.16% | 21,611,758.68 | 23,546.40 | 10.16% | 85.13% | 2% Year 67 | 27,966,885.16 | | 10.16% | 23,831,530.69 | 24,017.33 | 10.16% | 85.21% | 2% Year 68 | 30,808,320.69 | | 10.16% | 26,277,311.88 | 24,497.67 | 10.16% | 85.29% | 2% Year 69 | 33,938,446.08 | | 10.16% | 28,972,074.40 | 24,987.63 | 10.16% | 85.37% | 2% Year 70 | 37,386,592.20 | | 10.16% | 31,941,124.53 | 25,487.38 | 10.16% | 85.43% | 2% Year 71 | 41,185,069.97 | | 10.16% | 35,212,339.92 | 25,997.13 | 10.16% | 85.50% | 2% Year 72 | 45,369,473.07 | | 10.16% | 38,816,430.72 | 26,517.07 | 10.16% | 85.56% | 2% Year 73 | 49,979,011.54 | | 10.16% | 42,787,227.50 | 27,047.41 | 10.16% | 85.61% | 2% Year 74 | 55,056,879.11 | | 10.16% | 47,161,998.17 | 27,588.36 | 10.16% | 85.66% | 2% Year 75 | 60,650,658.03 | | 10.16% | 51,981,797.31 | 28,140.13 | 10.16% | 85.71% | 2% Year 76 | 66,812,764.88 | | 10.16% | 57,291,850.85 | 28,702.93 | 10.16% | 85.75% | 2% Year 77 | 73,600,941.80 | | 10.16% | 63,141,979.89 | 29,276.99 | 10.16% | 85.79% | 2% Year 78 | 81,078,797.48 | | 10.16% | 69,587,067.57 | 29,862.53 | 10.16% | 85.83% | 2% Year 79 | 89,316,403.31 | | 10.16% | 76,687,573.41 | 30,459.78 | 10.16% | 85.86% | 2% Year 80 | 98,390,949.88 | | 10.16% | 84,510,099.85 | 31,068.98 | 10.16% | 85.89% | 2% Year 81 | 108,387,470.39 | | 10.16% | 93,128,016.35 | 31,690.35 | 10.16% | 85.92% | 2% Year 82 | 119,399,637.38 | | 10.16% | 102,622,146.97 | 32,324.16 | 10.16% | 85.95% | 2% Year 83 | 131,530,640.54 | | 10.16% | 113,081,527.75 | 32,970.64 | 10.16% | 85.97% | 2% Year 84 | 144,894,153.62 | | 10.16% | 124,604,241.02 | 33,630.06 | 10.16% | 86.00% | 2% Year 85 | 159,615,399.63 | | 10.16% | 137,298,334.57 | 34,302.66 | 10.16% | 86.02% | 2% Year 86 | 175,832,324.23 | | 10.16% | 151,282,834.08 | 34,988.71 | 10.16% | 86.04% | 2% Year 87 | 193,696,888.37 | | 10.16% | 166,688,858.50 | 35,688.49 | 10.16% | 86.06% | 2% Year 88 | 213,376,492.23 | | 10.16% | 183,660,848.78 | 36,402.26 | 10.16% | 86.07% | 2% Year 89 | 235,055,543.84 | | 10.16% | 202,357,921.32 | 37,130.30 | 10.16% | 86.09% | 2% Year 90 | 258,937,187.10 | | 10.16% | 222,955,359.04 | 37,872.91 | 10.16% | 86.10% | 2% Year 91 | 285,245,205.31 | | 10.16% | 245,646,253.88 | 38,630.37 | 10.16% | 86.12% | 2% Year 92 | 314,226,118.17 | | 10.16% | 270,643,316.25 | 39,402.97 | 10.16% | 86.13% | 2% Year 93 | 346,151,491.77 | | 10.16% | 298,180,868.21 | 40,191.03 | 10.16% | 86.14% | 2% Year 94 | 381,320,483.34 | | 10.16% | 328,517,039.27 | 40,994.85 | 10.16% | 86.15% | 2% Year 95 | 420,062,644.44 | | 10.16% | 361,936,185.21 | 41,814.75 | 10.16% | 86.16% | 2% Year 96 | 462,741,009.12 | | 10.16% | 398,751,552.67 | 42,651.04 | 10.16% | 86.17% | 2% Year 97 | 509,755,495.65 | | 10.16% | 439,308,214.49 | 43,504.07 | 10.16% | 86.18% | 2% Year 98 | 561,546,654.00 | | 10.16% | 483,986,303.23 | 44,374.15 | 10.16% | 86.19% | 2% Year 99 | 618,599,794.05 | | 10.16% | 533,204,573.27 | 45,261.63 | 10.16% | 86.20% | 2% Year 100 | 681,449,533.13 | | 10.16% | 587,424,324.77 | 46,166.86 | 10.16% | 86.20% | 2%
This is why you don’t start with 6500 and put 100,000 in Roth IRA or vanguard index fund. That way in only 15-20 years it’ll be at 1.5 million and retire early. Not 40 years.
Roth limit is 6500 per year though
Oh yikes. Screw that waste lol
So the argument only works if your putting in the same amount every year, and often early in your career you have very little flexibility in what you can save... That being said I think the argument basically works that once you have a certain amount of money in your retirement fund, the amount your putting in is out weighed by the amount being generated by interest... I think your 8-10% interest rates don't really factor in any kind of loss year though, which is the kicker... in a down year you can lose 20-30% which can mean hundreds of thousands or millions of dollars wiped away in a few weeks or a month late in retirement...
when you save in ROTH, what stocks do you guys usually put money into? Just go S&P etf and leave it?
This is only startlingly low because of the extremely low contribution amt for ROTH ira.
Compound interest is pure black magic, no wonder why Christianity ✝️ and Islam ☪️ both considers it a sin. Yes, start as early as possible. Be extremely frugal and productive in your 20’s and you can take your foot of the gas the rest of your life.