I made a chart to show my children the importance of saving money now, while they’re young. I thought I’d share it. Maybe you’ll want to show your children or grandchildren.
My children have gotten summer internships the past few years. I helped them file their taxes and talked to them about saving some of their earnings. I told them “The money you save today will be far more important than what you will save later in life. So save some before you find ways to spend it.” They’re good kids, and my wife has done an amazing job teaching them to manage money ever since they started earning allowances. They didn’t need much convincing.
Nevertheless, I wanted a simple plot that would drive the point home. I couldn’t find such a plot, so I decided to make it myself, with a python script.
This chart shows how your savings grows through 40 years of work life, split into the decade in which you put the money aside. 70% of the retirement assets come from your savings in the first half of those years! This chart is an example that assumes you save $4,000 the first year, and increases that at 2% each year to keep up with inflation. I assumed a 7% annual return on investment, which is a bit on the conservative side for long-term investments.
If I assume an average of 10% annual investment return, which is reasonable for long-term investments, the chart gets even more interesting. The 3% increase in return rate results in doubling the savings at retirement! More than half of the retirement assets come from the first 10 years of your work life. Just a little bit comes from the last 10 years.
I have read that many Americans find themselves wanting to retire or forced to retire but don’t have sufficient funds to live on. That makes me sad. I hope these simple charts will help you or someone you know recognize the importance of saving early.