TL;DR: Saving just $2,500 a year from age 27 to 32 has the same effect on your retirement income as saving $25,000 a year (10 times as much!) from 57 to 62! Saving a little bit now means a lot because it works for you for 40+ years!
I preface this post by saying this spreadsheet is very basic. I made it to figure out how smaller investments early in life stack up against larger investments later in life. You may be vaguely aware of the importance of compounding and investing early, but it's cool to be able to see (and edit) actual numbers.
Link to the spreadsheet. If you're logged in to a Google account, click the Drive icon w/ the plus sign near the top-left to create your own copy of the spreadsheet and change numbers. Hover over cells with black triangles for notes.
The blend of stocks/bonds/TIPS is taken from Vanguard Target Retirement funds for investors of a given age. Future returns of Vanguard stocks/bonds/TIPS are predicted as a fraction (80% by default) of the 15 yr. trailing returns reported by Morningstar for the individual funds in the blend (VTSAX, VBTLX, etc.). Based on the blend, returns go from ~7% at the youngest age to ~4% in retirement due to the increasing proportion of bonds (and TIPS) with age. I understand that the current blends used for Target Retirement funds depend on the current market, and may not reflect the best possible blend of funds to use in the future. To reiterate, this spreadsheet is more of a thought experiment than a serious projection of value.
If you make a copy of the spreadsheet, you can change the expected future returns of each fund, the blend of funds used in each age bracket, the average annual investments, and more. Notice that zeroing out the small $2,500 annual investments from 27 to 32 affects retirement payout almost the same as zeroing out the large $25,000 annual investments from 62 to 67. There are all sorts of trade-offs you can explore by changing annual investments in a given half-decade.
This sheet doesn't take taxes or inflation into account. There's no delineation between Roth IRA, 401k, and standard contributions. It's all very speculative and basic, but I found it interesting nonetheless.
Submitted August 17, 2017 at 04:29PM by abcteryx http://ift.tt/2w6p7co
