A mandatory shelter-in-place order + new baby = I’ve been watching a lot of TV. Since I found the end of Netflix, I’ve switched my viewing to Prime Video’s original programming and found “Upload”. The show takes place in the year 2033, and instead of going to Heaven, people can “upload” their consciousness into a digital afterlife. In this digital afterlife, you pay for the type of lifestyle you want, from living environment to clothes to experiences – the list goes on. If you don’t have enough funds to maintain your desired lifestyle, you can be a “2G,” which means that you pay for the absolute basics, shelter and food. Anything more than that and you’re frozen until the next month. Spoiler alert: the main character’s digital afterlife is costing well over $10,000 a month.
If “uploading” was real, what would that mean for the concept of saving for retirement? Your retirement would last for all of eternity, meaning your money would have to last for all of eternity. The amount that you saved during your lifetime would have to extend to pay for the digital afterlife that you wanted to have. Poor planning could doom you to an afterlife as a 2G.
If you’re younger than 55, retirement already feels like an eternity away. Trying to fathom saving for a future self’s needs, wants, and desires seems insurmountable. Fortunately, there are some easy steps you can take (plus a little magic, aka compound interest) to ensure your savings can get you to and through retirement and beyond.
I’ve talked about the retirement savings waterfall before, but let’s focus on the Roth IRA savings. Anyone with earned income can contribute to a Roth IRA. You can contribute up to $6k a year (maximum contribution amount for 2020 if under 50 years old). For under $17 a day, you can save for retirement. Take this example – let’s say you’re 30 years old and begin saving $500 a month (for a total of $6k a year) into your Roth IRA. You faithfully save this amount each year for 35 years. You’re 65 years old now. If your investments returned 8% a year (a little less than the average annual return of the S&P 500), your $17 a day ($500 a month) is now worth $1,033,900.82. That’s right, you didn’t start saving until you were 30 and by retirement you have over $1 million. If you started saving into a Roth IRA at age 20, you would have over $2 million by age 65. Now, just think about what would happen if you also saved into your employer’s retirement plan or another investment account. The lesson here is it pays to start saving and investing now – not waiting. Small amounts grow into larger amounts over time. *This example is for illustrative purposes only and the return is not indicative of any actual investment. Actual investment results may differ substantially
Bonus: A little silver lining for this year (because of Covid19), you have until July 15th to make contributions to your Roth IRA for tax year 2019.
Now, I know what you’re thinking, Covid19 is wreaking havoc on the stock market, and it feels like the sky is falling. These feelings are valid, but that is precisely why now is the time to start saving and investing. A down market means that stocks are on sale. Wouldn’t you rather buy a car at 20% off rather than paying 20% more for that same car? That’s what it’s like investing now in a down market – buy low and sell high. If you start investing early and have a long time horizon, your money can weather the storm of market volatility. All it takes is a little planning and discipline.
If you’d like to talk about saving for retirement (or the logistics of a digital afterlife), get in touch with me, Anne Simpson (Anne.Simpson@odysseypfa.com).