Ben Carlson at MarketWatch has produced interesting data on savings rates in
Opinion: How a slight edge in investing adds up to big money over time.
In his article he starts with a short story from Atul Gawande on how small changes have a big impact in the medical field where people look for big, miraculous changes. As an aside Dr. Gawande is one of my favorite authors and I highly recommend his
The Checklist Manifesto.
So, what is the impact of a small change in the saving rate? Carlson first looks at an example of a household income of $100,000 saving 10%/year and achieving an investment return of 8%. After 10 years this will produce a portfolio value of $132,822. Increasing the saving rate to 11% results in a portfolio of $146,104. He shows portfolio values for 1% incremental returns up to 15% where the portfolio value approaches $200,000.
It is important to note that the period is relatively short in terms of the saving horizon most retirement savers experience. In fact, most savers should be saving over a 30 year plus period!
Carlson also provides an interesting chart showing the impact of marginally increasing your saving rate. He starts, again, with 10% and then increases by 2% to 10.2%.
The big take away is that incremental changes have big impacts over longer periods of time (both in a person's health as well as their retirement program) but it is difficult to appreciate them because they are barely noticed in the beginning.
Thoughts and observations for those investing on their own or contemplating doing it themselves.
If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.
Tuesday, January 24, 2017
On the Difference in Saving Rates
Posted by Robert Wasilewski at 8:49 AM
Labels: DIY investing, saving for retirement
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