What can 10% do?

Do you remember your first job? That first paycheque you got and the “huge” amount on it. I’m old enough to have received an actual cheque from my first employer – these days money is all digital and paycheques are direct deposits.

 

This blog post is about habits and what a 10% habit can do for you long-term. I have a 17-year old son who I am trying to help develop good habits, especially financial habits. As far as savings goes, it is much easier to “squirrel away” money before we get used to having a certain income as opposed to “carving it out” from existing spending. That’s why advisors will always suggest saving a certain percentage of any bonus or raise that you receive. If you get a 10% raise, simply save the first 10% of that and you’ll still have a great improvement on your lifestyle spending.

If income is $60,000 and a 5% raise is received ($3,000), simply direct 10% of this raise ($300) to long-term saving – you’re still left with $2,700/yr in new spending!

 

So what can 10% do for you long-term? Simple answer is A LOT. Using two income levels, $60K and $75K and different starting ages, the following charts show the projected nest egg at age 65:

Starting at age 35

Income	Save 10%	Balance @ Age 65
$60,000	$6,000	$418,000
$75,000	$7,500	$523,000

 

Starting at Age 45

Income	Save 10%	Balance @ Age 65
$60,000	$6,000	$208,000
$75,000	$7,500	$260,000

 

To provide some reference, assuming growth at 5%, in order to fund retirement income of $40,000/yr for a 30-year period, $645,000 is needed at age 65.

 

Point is, when it comes to investing and the power of compound interest, time can either be your friend or your foe – if the habit is developed early, time can be the greatest friend you have.

 

Keith MacKay CLU® CEA MFA-P CFP® CHS