"Excu-u-use Me" Series: The Harried 30-Somethings

Most 30-somethings – if college graduates – will still have an outstanding student loan, a spouse, and a starter home (mortgage) purchased to make room for a couple of kids… oh, the exhilaration of more excuses to not save money.

By the time young people reach their 30s, they are more experienced and valuable to an employer who, most likely, will reward these more productive employees with salary increases. Or, if they are young entrepreneurs, they will reward themselves by being more adept at managing a business and increasing its profitability. Yet, most of these 30-somethings – if college graduates – will still have an outstanding student loan, a spouse, and a starter home (mortgage) purchased to make room for a couple of kids - more excuses to not save money. After all, mortgage payments, credit cards and other debt must be paid. And those pesky kids are now involved in all kinds of activities. And the car is coming of age, requiring frequent repair. These are all good reasons to spend money – and to not save anything – or at most, not save very much.

Behind The Eight Ball

By all accounts, it would be nice to save about three times one’s salary by age 40. Transamerica data shows 30-somethings have a median $45,000 saved. But to be headed for a comfortable retirement, ideally, the family should have about the equivalent of their annual salary saved as a nest egg at age 30, twice their salary at age 35 and three times their salary by age 40. Should we infer from this statistic that the family income is only $13,000? Of course not, but it most definitely is an indication that the 30-something family is “way behind the curve” in what it should be saving.

Remember the savings and investment strategy introduced in the 20-something blog (Oct. 4)? Let’s assume that another small percentage of families decide to become savers by ridding themselves of that insidious Million-Dollar Habit, smoking. Let's use the same assumptions as were used in last week’s blog, except that this group begins to routinely save at age 30 versus tucking away only a sporadic $20,000 like that 30-something group.

Penalty for Dawdling

To recap those assumptions, beginning at age 30, the saver invests $440 of after-tax money every month in a Roth IRA, compounded monthly at 6.45%. Remember, at age 30, his/her savings account holds only $20,000; by age 40, it is worth $110,900 versus the early saver’s $212,482; by age 50, $280,761 versus the early saver’s $470,532, and by age 65, it is worth $848,600 versus the early saver’s $1,333,235 (for that 20-something kid who started saving at age 20).

Oh, the value of starting to save early in life and the benefits derived from compounding larger numbers earlier in the game! In short, by saving only occasionally during the first decade of a career, those excuses cost our sporadic saver over $484,635 in retirement savings (even though our sporadic saver began to steadily save after age 30).

Wait until you see what sporadic saving will cost those procrastinators in their 40s. That sad story is next (week).