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by Alan J. McMillan | May 09, 2016


As I've written before, achieving financial independence should be one of your major career goals—no matter what field you enter. Unfortunately, getting there is elusive to most, and it shouldn't be, provided you start early enough in your career, and remain focused.

The story that follows breaks down the biggest component to get you to your financial freedom. I tell this tale every time I speak to young people about their financial wellbeing and they tell me consistently this is one of the most powerful metaphors they have ever heard. If you act on what I am about to share with you, it can literally change your life.

Now, couple this with the notion of NOT squandering your 20's and you are quite literally going places!

The Tale of the Twin Sisters

Twin sisters Angelina and Betty, 35, each flew home from their respective cities to Mom's house for Thanksgiving.  

They were catching up when Angelina leaned over to Betty and asked, "Are you doing anything for retirement?" Betty said, "No, retirement is so far away, we have so much time… are you?"

Angelina replied, "I'm not doing that much, but at 25 I started sending $2,000 a year to Morgan Stanley where they invested it in a diversified portfolio of mostly mutual funds. When I began, I told them this was for my retirement in about 40 years, or 30 years from now. One year I made a bunch of money, another year I lost a little, but I usually make some. Whatever gain I realize, I just have them reinvest it in my account."

Then Mom came in with the turkey and the conversation changed.

When they each got home, their conversation about retirement kept resonating in their heads. Betty, feeling a little challenged by her twin, thought "maybe my sister is right, we are not as young as we used to be." So the next day, she called Northwestern Mutual, opened an account, and began to invest $2,000 a year.

Meanwhile, Angelina also wondered if her sister had been right. "We both make the same amount of money, yet she dresses nicer, her furniture in her apartment is new, and she just got back from Cabo while I have never been out the country!" So she stopped contributing to her retirement fund, and started to enjoy having the extra $2,000 to spend every year.

So who do you think had the most money in their account at 65?

The Answer

Both sisters contributed $2,000 each year they invested in their retirement. Angelina began at 25 but stopped at 34, so only contributed $20,000. Betty invested from age 35-65 the same $2,000 a year. Therefore, she invested $62,000. 

  Angelina Betty
Number of Annual Contributions 10 31
Amount Invested Annually $2,000 $2,000
Total Invested $20,000 $62,000


Even though Angelina stopped early, and only put in $20,000 versus Betty's $62,000, the power of compound interest worked powerfully to her advantage. At 65, Angelina has a retirement nest egg of nearly $490,000 compared with Betty's $334,055. (By the way, this example was calculated on a 9% rate of return.)

  Angelina Betty
Account Balance at 65 $487,829 $334,055
Total Gain $467,829 $272,055
Account Balance if Angelina Did Not Stop $864,744  


The Warning

Young people usually don't invest sufficiently for two reasons:

  1. They think the whole 'investing thing' is so complicated, so they do less than they could and less than they should
  2. They feel, 'when I really make some big bucks, then I will get after it'

Both of these thoughts are wrong and harmful to your goal of achieving financial independence!


The Lesson

The earlier you start contributing to your retirement, the better. Young people have to start putting aside something for the 'Golden Years' the moment they hit the job market.

The experts say you need to get to 12-15% of earnings, so in our example, both Angelina and Betty fell well short of that, assuming they were making median income (in 2015 that was $53,657 according to the Census Bureau).

But you vividly see that the real trick is 'STARTING.' Because of compound interest, the early years were the most important ones for building wealth.

And no matter how underfunded their accounts are, they're still ahead of the game compared to many. Consider that, of all Americans 46-64 years old:

  • 25% have nothing saved or invested
  • 46% have less than $10,000 saved or invested
  • 60% have less than $25,000 saved or invested


What You Should Do

1. As you leave campus and are moving in to your earning years, make a plan before you make your housing or transportation decisions. If you begin to invest from day one, you will get used to it, and find it easier to live within your means while saving. (The concept of living within your means should include funding your retirement nest egg anyway.)

2. If you don't think you can make that 12-15% goal immediately, begin with what you can. Then, if put your first few annual raises toward your retirement plan (you'll need to hold your living expenses at the same level), in a short time you will be at your goal of 15%.

3. NEVER invade these long term assets for sake of near term expenses. Many people violate this principle and live to regret it over time.

4. Have an Emergency Account. There is a big difference between saving and investing. You need a savings account earmarked for Emergency (6-24 months of living expenses based on your job volatility and personal factors). Without one, if you get hit with an emergency you will be tempted to go into debt or, worse, invade your long term retirement assets.


Don't squander your 20's. Starting at 22 (or earlier) will propel you to a very nice financial outcome that one day you will be very glad you started.


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