One thing I really believe that the school system does not teach our children is financial literacy. We learn everything from numbers, fractions to percentages, decimal points to complex Calculus equations, however, the one thing Math classes do not teach our kids is financial literacy. This is something we just “pick up” along the way.
I’m a firm believer of learning financials from a young age, so we talk to our kids about money and how we use it, where it goes and what it does. From time to time we use coins to do the math, and we write on paper – examples of what happens with their money, say they get a gift from one of their grandparents. (We really do keep track of that on a spreadsheet and work with them). We give them money and have them go buy things at stores while we wait on the side. We want to empower them to learn about the worth of money.
I believe everyone should have a basic understanding of money, how to best go about with it, and what to do with it, logically with the “why” aspect. That just spurred some thought about savings and retiring that I wanted to share. I am by no means a financial guru, but I know my way around (have a common understanding) stocks, crypto, P&Ls, EBITDA, Cash flow, GAAP, etc. And you should too.
Well, we all are getting older, and saving for retirement is important. You never know where the economy will stand in 10 years, 20 years, or by the time you hit 67 – or who knows what age you’ll be able to retire based on your local legislation and the fact that we are getting older as a society. I recently read a report that only 12% of people who were in their mid to late 60’s had reported that they had at least €1 million in savings.
On the one hand, that is fairly poor in regards to the spread of population say within Europe – ca. 741 million inhabitants – only roughly 89 million have a net wealth of 1 million Euros for retirement. The rest – who knows…struggling to get by? The United States, according to the Ameritrade report is no better. On the other hand, 1 million Euros for retirement for the average person/couple at this stage in their life is more than enough.
However, for the sake of getting you to think bigger and enabling you to think about a truly secure pillow by the time you retire at 67 – let’s look at what it would take to save €5 million Euros (you could do dollars as well if you live in the U.S.) by the time you retire. Again, I just want to spur some thought in your thinking.
Goal = €5 million
I’m going to make 3 generic assumptions:
- You are starting with 0 Euros in savings
- The average yield of your investments will earn you 6% annually
- The plan is to retire at 67
So based on those assumptions this is what you would need to do to reach our goal of €5 million.
|Age||Years to Save||Monthly Savings||Retirement Savings|
|20||47||€ 1,596.00||€ 5,000,000.00|
|30||37||€ 3,065.00||€ 5,000,000.00|
|40||27||€ 6,199.00||€ 5,000,000.00|
In other words, if you started saving when you were 20, you would need to put aside ca. €1,596 for the next 47 years (MoM – Month over Month) to reach our goal of €5M with an annual return of 6% on that investment. If you started at 40, you would need to put aside ca. €6,199 Euros over 27 years to reach the same. That is one huge difference.
Just to make this a bit more visual I threw it in an excel and this is what it would look like.
I purposely left out 25 and 35 – this is just for visual display. That means if you start investing at 20 you put in just under €1M whereas if you start when your 40 you will need to contribute over €2M – that is roughly a 121% increase out of your own pocket. That is huge!
I just felt compelled to write this brief post and share some thoughts on investing (I have a ton), because I find it so important to learn, understand, and execute on basic financial principles. That doesn’t mean you need to save every Euro and flip the coin three times. Most likely, you won’t need €5M to retire comfortably without having to worry about inflation, expenses, pension, etc.. however the point is to spur some thought about now vs. then.
Also, I don’t want to convey that life is all just about working hard, long hours, and saving, knowing that you’ll need money when your older and when the job market is tougher. I think most people don’t get this until late in their lives. Life is about balance. Enjoying the here and now while strategically planning for the future. And yes, there are a lot of factors to consider – salary, perhaps a mortgage, kids going to school, etc. but the point of this brief post is to convey the message that you should live life to the fullest, smartly. Invest and learn basic financials. Put money aside (not in a savings account, except for a rainy day fund), but into investment accounts so you earn interest (compounding!).
Let me know what you think.