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Delayed Saving: Starting Late in Life to Save for Retirement

“The best time to plant an oak tree was 20 years ago… the second best time is today.”

– Chinese Proverb

Likewise, the best time to start putting aside money for one’s retirement is when you are young. For when it comes to getting compound interest to work its magic, time is the key ingredient.

But what about all those people who don’t have 40 or 50 years left to build a significant-sized nest egg for retirement?

Well, according to financial expert and author, David Bach, it’s never too late to start. “Even if you’re starting late,” Bach writes in his book, Start Late; Finish Rich, “you can still amass quite a respectable amount of money.”

And you don’t have to be earning some sort of mega annual income either. In fact:

“How much you earn has almost no bearing on whether or not you can build wealth.”

– David Bach, Start Late; Finish Rich

Rather, explains Bach, “It’s not how much we earn, it is how much we spend.” And some of that spending can easily be trimmed by looking at what Bach calls the “Latte factor.” If, for example, you are currently buying a fancy coffee every day for $5 – and you instead saved and invested that $5 per day, you could actually build a nice little sum of money.

Here are some numbers:

If you save $5 a day ($150/month) and got an average 10% return on your money (compounded annually), then in 10 years, you would have $30,727. But in 30 years, you would have $339,073.

Now, if you double your savings and were able to save $10 a day ($300/month) and got an average of 10% return on your money (compounded annually), then in 10 years, you’d have $61,453. But in 30 years, you’d have $678,146. Now we’re talkin’ (especially if you live in Canada and put that $3600 a year into a TFSA, as then that money can be withdrawn tax-free).

And let’s say you can afford to put aside $20 a day ($600/month) and got an average of 10% return (compounded annually), then in just 20 years, you would have $455,621. But in 30 years, you’d have $1,356,293.

Now of course, the stock market at the moment isn’t exactly reflecting a 10% rate of return. And you’d be lucky to find a GIC (CD in the US) for 2% these days, let alone 10%. Fair enough. But building wealth by regular saving and prudent investing – regardless of our age – isn’t usually a quick rich scheme.

Rather, it is slow and steady wins the race, even if you’re just starting that race in your mid-forties. Because historically, the stock market has provided investors with a decent average return on their money.

According to Observations (a personal finance blog that provides historical perspective, emphasizes strategic planning, and uses graphs & spreadsheets to show how financial things work), between 1900 and 2012, the average total return/year of the Dow Jones Industrial Average was approximately 9.4% and that, of course, includes the crash of 1929.

In his blog post, The Historical Rate of Return for the Stock Market Since 1900, Tom DeGrace looks at the stock market returns over shorter chunks of time. The 1990’s, for example, were a phenomenal decade with the average return per year being 18.17%. The next decade (2000 to 2009) was not so great: 1.07%. But then in the following three years (2010 to 2013), the average return was 16.74%.

“What counts is your time in the market, not market timing.”

– Investment Funds Institute of Canada

Alas, David Chilton, in his book, The Wealthy Barber Returns, suspects the markets may have more rocky times ahead in the short term. “Going forward,” writes Chilton, “we might have to deal with “muddle-through” financial markets fighting the headwinds of excessive public and private debt and the resultant slow economic growth.”

I suspect he’s right (but then again, that also means there are – and will likely continue to be – some tremendous buying opportunities in the markets). According to Stats Canada, personal debt is on the rise: Canadians owed almost $1.64 for every dollar of disposable income they earned in the third quarter of 2015. In 1990, this figure was about 90 cents.

And on the subject of personal debt: if one is carrying any sort of a balance on their credit card and only paying the minimum monthly payments, accumulating any sort of wealth is going to be extremely difficult.

Here’s a powerful example from Start Late, Finish Rich:

If you owe $10,000 on a credit card and pay only the minimum payment (with an interest rate of 19.98%), it will take you more than 37 years to get out of debt – and before you do, you will have forked out nearly $19,000 in interest charges.


“Credit cards allow us to act wealthier than we are,” explains Chilton in The Wealthy Barber Returns, “and acting wealthy now makes it tough to be wealthy later.”


So what to do? Well, I think this observation speaks volumes:

“When I sit down with people who have saved sufficiently throughout their lives, I see three common denominators: 1) They paid themselves first; 2) They started young, or if not, they compensated with increased savings rates; and 3) Their debt management followed the approach of “Owe No!”

– David Chilton, The Wealthy Barber Returns

As for how much to pay yourself, experts suggest you set aside 10% to 15% of your gross income – especially if you’re starting late in the game to save.

And if you have significant credit card debt, David Bach suggests your first step is to call your credit card company and ask for a lower interest rate. And if they won’t give you a lower rate, then find a credit company that will – and transfer your balance.

Interestingly, however, Bach does NOT suggest you pay down debt first and THEN start saving. Rather, he strongly suggests you do both!

But I reckon if a person is concerned about their financial future, perhaps the worst thing they can do is… nothing at all. For it is better to plant a small seed that will grow into a little oak tree than plant no seed whatsoever.

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