I talked about it before, when it comes to saving for retirement, time matters. According to Chase Bank, Baby Boomers began saving for retirement at age 40, Gen X began at age 30 and Millennials began at age 23. This is a big deal. The earlier you start saving, the more time your savings has to multiply. It gives more room for the rule of 70 to work its magic.
The rule of 70 is an easy way to figure out how long it takes for your money to double. You divide 70 by your yield. So if you use the average S&P return over the past century of 10%, it would take 7 years for your retirement savings to double. So if you retire at the “normal” retirement age of 66, Baby Boomers retirement savings doubled only 3.7 times versus 5.1 times for Gen X and 6.1 times for Millennials. This is big difference because doubling an amount that has already been doubled is significant over time.
As always, I have an example to show the power of doubling over time. My example uses a starting amount of $500. Baby Boomers would have $4,000 after it is doubled 4 times, Gen X would have $8,000 after being doubled 5 times and Millennials would have $16,000 after a doubling of 6. As you can see, doubling can be a make it or break it advantage.
The other news I have is from Vanguard. They’ve released their 2015 report on How America Saves and a good and bad trend has appeared. More Americans are in involved in their employers 401K plans but the rate at which they are saving overall is down. The median saving rate was 5.9%, which is down from 7.3% in 2007. However, they saw an increase in people signed up for employers plans. They attributed this to the adoption of automatic enrollment, which has grown by 50% since 2010. 63% of employees were enrolled through automatic enrollment in 2015. It is good news indeed that more people are signing up and participating in their 401k plans, no matter how they get signed up.
Who knows what will happen with Social Security. It isn’t something we have control over. There is constant talk about changes that need to be made and different politicians making promise after promise but one thing is clear. Nothing has radically changed so far and who knows if it ever will. That means you have to control what you can control, you. We each have to work at saving what we can in order to take care of ourselves and our families. The Government’s promises aren’t written in stone and they’ve let us down before. So I’m glad to see more and more people rely less on the Government and more on themselves.