Can we retire on spare change?
It’s worth thinking about. After all, most of us have coins in our pockets after running errands or grabbing a cup of coffee. What would happen if we invested that money, instead of losing it in the couch?
The short answer is, it depends. It depends on how much we save, how long save, and what the return is. So let’s assume you’re a 50-something who has about $2 of loose change each workday–$10 by the end of the week. You don’t want to take too much risk, so you only earn 4%. Can you retire on that? No: after 20 years you’ll only have $16 thousand—maybe enough for a used fishing boat.
Real savings has to be more deliberate. If you are able to save $200 per week and you earn 8%–a reasonable long-term return on stocks–you’ll have over $500 thousand in 20 years. Not bad. But if you’re able to start saving in your 40s and have 30 years, those same savings will grow to a $1.3 million nest egg.
The magic of compound interest comes from the amount of time that you give it to work. That’s why it’s important to start early. If you want that $1.3 million nest egg, you need to put aside $200 per week for 30 years, or $85 per week for 40 years, or $38 per week for 50 years. The earlier you start, the less you need to set aside. The secret to saving for retirement isn’t market timing, it’s time in the market.
You really can win the lottery—not by buying tickets, but by investing enough for long enough. In the short run, the stock market may be volatile. But over the long haul, it’s the greatest wealth-building machine ever invented.
Douglas R. Tengdin, CFA
Chief Investment Officer