We didn’t have as much of a gain in my work 401k as we did last month, but it’s still a gain. And our rate of return for the fiscal year is currently at 29%.
Our growth on our Roth IRAs is more than double what it was last month, so that’s a good thing.
I was thinking about our 15 year old daughter being able to get a job next year, and doing what I do, jumped ahead to ridiculous ideas.
I told Christy and her last week that when she gets a job we should open up a custodial Roth IRA for her. Christy reminded me of our more important and immediate goal for her – getting her through collage with zero debt. We don’t have the money to foot the entire thing, so she’s going to have to save and have skin in the game as well.
Christy did the work and was fortunate enough to go to college completely on scholarships and financial aid. We make too much money for our kids to receive financial aid, so I am going to do some legwork to get our kids the information they need to apply for scholarships and help them along.
When I brought up the Roth IRAs our daughter loudly said, “I’m 15 years old! I don’t need to be thinking about retirement Dad!”
I agree, but it isn’t going to hurt to get in the mindset of saving and being fiscally responsible, which the older two are pretty good about already.
Since Christy and I never had money conversations in our households growing up and are now responsible with our finances, we plan to have those conversations with our kids and hopefully prevent them from making a lot of the mistakes that we did in our younger years.
My thinking for getting them started as early as possible in a Roth IRA is the compound interest. I wasn’t thinking a large amount. If you calculate just $10 a month from the age of 16 to 62, that is an investment of $5,520.
At a 6% rate of return that is $23,863 in growth on a measly $10 a month. At 8% it is $51,730 in growth. At 10% it is $110,407 and at 12% it is $236,363. Nearly a quarter of a million dollars from $10 a month. You can see how I drive myself crazy with this stuff.
Just one little exercise because I love looking at these things. These numbers are based off her maintaining an average 10% return over her lifetime. If she invested $10 a month from the age of 16 to 20 she would have contributed $480 and made $107 in growth.
Assuming she had a decent starting income and was able to start contributing $200 a month in either her Roth IRA or employer 401k (preferably Roth) when she turned 20, she would have approximately $1,587,326 at the age of 62.
If she had done no investing from the age of 16 to 20 and and was able to invest the same $200 a month at age 20, that would be approximately $1,548,858 at the age of 62. That $480 that she invested over that early 4 year period would make a difference of $38,468!
Because I didn’t know what I know now when I was younger (and made a stupid decision in 2008), we are currently investing around $2,000 a month and will end up with only $118,000 more than she would have in the first example. Having an extra $1,800 a month to end up with numbers that close would be pretty nice.
Even if none of our kids start investing for retirement until their twenties or even early thirties, I’m sure they will have the tools and mindset to be completely fine in retirement.
The earlier they start, either the less they’ll have to put in monthly and they can use more of their income to enjoy their life, or they stand the chance of being insanely wealthy in retirement and can pass that wealth along to their children.
| Investment | Deposit | Balance | Growth |
| Work 401k | $1,213 | $111,748 | $503 |
| Roth IRAs | $1,000 | $23,680 | $181 |