Jeff Rose at Good Financial Cents inspired me to write on the Roth IRA movement.
I’m one of those dinosaurs that started her first IRA in her 20’s at the beginning of the IRA movement. At that time, there was no such thing as a Roth IRA, so I went with a traditional IRA. On top of that anomaly, I was the only 25 year old at a retirement seminar in a room full of 60 year olds.
Although my passion for saving and investing has stood me well over time, I am deeply concerned about the financial future of those who haven’t yet started to save and invest. Read on for some motivation to get started investing in a Roth IRA today.
A True Retirement Story
At 8:00 AM I receive a call from an older neighbor, just wanting to talk. She started off by recounting the details of her husband’s firing from his job. My neighbor, June, believes he got fired because of his hot temper. Strike one, keep your temper in check at work.
The saga continues as she tells me about the new blinds she is buying for the home. I casually mentioned, that she might postpone this purchase since HER HUSBAND, THE MAIN SOURCE OF FAMILY INCOME JUST LOST HIS JOB. June replies, that expense was already planned so she will get the new blinds. Strike two, don’t add more financial stress after a job loss.
To top it off, June continues her financial mismanagement by sharing how she paid a consultant $100.00 to explain Medicare coverage to she and her hubby. Unable to keep my big mouth shut, I said that Medicare will explain their system FOR FREE. Strike three, don’t pay for information readily available for free.
The final blow came when she mentioned she has NO ROTH IRA, NO TRADITIONAL IRA, and not much saved up for retirement.
She stated “We don’t need retirement savings, we’ll have social security soon.”
What is she thinking?
Why You Must Start a Roth IRA Today
I understand that retirement seems a long long way off for those in their 20’s and 30’s. Yet, the earlier you start saving, the less total money you need to save, and the more you will have at retirement time.
There is uncertainty in the future of social security. At best, benefits will be smaller and start later than they do now. Long term employment with a singular employer is practically nonexistent. So, if you fail to take responsibility for your future, you face a scary life in old age. As we all live longer, we need more assets to ensure that we don’t outlast our money.
I beg you to explore the data so you don’t end up old and poor.
Check out the facts:
At age 25, Joleen began investing $200.00 per month in a Roth IRA and her employer added another $100.00 per month bringing the total up to $300.00 per month.
She invested the monthly retirement money* this way:
- 40% ($120.00) in Vanguard Total Stock Market Index Fund (VTSMX)
- 30% ($90.00) in Vanguard International Stock Index Fund (VTIAX)
- 30% ($90.00) in Vanguard Total Bond Market Index Fund (VTBLX)
She started investing at age 25 and stopped at age 65, for a total of 40 years.
At age 65, Joleen’s contributions plus her employers’ grew to $787,444.00*.
Jamar, Joleen’s brother wanted to spend his earnings and didn’t think about the future. No retirement investing for Jamar, he was having too much fun; Jamar figured social security would take care of him.
At age 40, Jamar had a change of heart. He woke up one morning and realized that he had nothing invested for his future; and he was scared. He decided to start investing and chose the same investments as Joleen, but decided to try to catch up. Jamar invested $400.00 per month, twice as much as Jill’s $200.00.
Jamar’s employer matched his $400.00 per month with an additional $100.00, just like Jill’s. This brought his total monthly investment to $500.00.
*Assume: Portfolio average annual return of 7%
At age 65, Jamar’s contribution plus the employers’ grew to $405,036.00, while Jill’s lesser contributions grew to almost twice that amount at $787,444.00.
Jamar invested $24,000 more than Jill and ended up with $382,408.00 less than Jill.
My friend June is living in denial. When social security comes, it won’t match her husband’s former income. As her savings are small and she didn’t plan for the future she faces major lifestyle cuts as she ages.
The alternative to old age is death. If you expect to get old, own up to reality, and invest through work or a discount broker in a Roth IRA and start contributing today. Even if Social Security continues, don’t expect it to pay for a comfortable retirement. You can choose not to invest for the future, but be aware that social security is uncertain, and you will be poor in your old age without investing in an IRA.
Start now, you won’t miss the money and you’ll appreciate the financial security later.
You do need IRA, Social Security won’t be enough to support your retirement.
Have you started your retirement investing yet? If not, what are you waiting for?