When you retire, you will still have to pay for food, clothing, and any other living expenses, but likely on a smaller budget. To make up the difference in income, you will need a retirement fund. And without investing, that retirement fund almost certainly won’t grow enough to support your retirement income needs.
The Cost of Not Investing $20 Per Month
Many people say they don’t have enough money to invest, but you don’t need to save hundreds or thousands of dollars per month to make it worthwhile.
Just saving a little bit adds up. Let’s look at what $20 becomes over time if you were to invest it.
Before interest, $20 per month adds up to $240 per year. Over 25 years, that is $6,000. That alone is a nice little bit of cash, but thanks to the power of the stock market it can be worth quite a bit more.
If you were to invest the $240 at the end of every year for 25 years and earn 10 percent—roughly the annual return of the S&P 500 over time—you would have $23,603 at the end. If you were to invest the $20 automatically every month instead of at the end of the year, you would have $26,537 at the end of 25 years.
The cost of not investing $20 per month over the course of your career is over $20,000! This isn’t chump change. Imagine how far $20,000 goes in retirement. For many people, that is half a year’s income.
Even if you put your money in a savings account, you are losing out compared to investing in the markets. The best savings account interest rates today are around 1 percent; at the end of 25 years saving $20 per month at the beginning of every month, you would have $6,819.08. That is more than $800 more than just stuffing it under the mattress, but still five figures short of what you’d get by investing in the markets.