Hope was a pragmatic young lady who knew the importance of planning ahead. On her 18th birthday, she decided to start saving for retirement. Being a college student, she didn’t have much money to save, but she wanted to start with something.
A local bank had a plan that was perfect for Hope. She would get a fairly moderate 5.1% interest rate on her savings, provided she follow one rule: she must save some money every day, even if it was as little as one cent.
Hope started off saving five cents per day. She followed this plan until her 21st birthday, when she increased her savings to ten cents per day.
By her 25th birthday, she was enjoying a few years of full-time work, and raised her daily savings to 25 cents per day.
Turning 29, with her career taking shape, she increased her daily savings to 50 cents per day, and continued to save that amount each day until her 67th birthday.
On her 67th birthday, Hope went to the bank to see how she had done. Over the years, she had saved just over $7,500 — yet never took more than 50 cents out of her pocket. In her retirement account was much more than that: over $25,000 — more than three times what she had saved.
Sure, no one can retire on $25,000, but everyone can save as little as 50 cents per day. What if Hope was more aggressive in her savings? What if she had saved $1 every day for her entire adult life in the same retirement account (with its 5.1% interest)? Continue reading