To quantify some of this, the New York Times "Savings Calculator" is a useful resource. You can see the inputs DIY Investor put into the calculator. DIY Investor assumed a $40,000/year income, 10% savings rate, 8% investment return, and a 20-year time horizon. This produced an end-of-period savings balance in inflation adjusted dollars of
|Source: New York Times|
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Next DIY Investor assumed the savings rate was increased by 2%, by putting the payroll tax cut into savings. Keeping everything else the same produced an end-of -period savings balance of $393,735--an increase of approximately $60,000.
All of this translates into choices 20 years down the road. In real terms, it may make the difference between having to work another year and a half or having the flexibility to retire.
This is a useful tool, DIY Investor believes, for motivating young people to save for the future. The next few years will reveal how poorly this has been done by the "boomer" generation.