Recently, as my 27-year-old physical therapist was getting my shoulder into golfing shape, I asked her about her saving and investing habits. She confessed that she hadn’t been putting a big priority on saving and investing yet — no surprise there. So I told her about my fictional friends, Stan and Ollie, 21-year-old twin brothers just beginning their professional careers, and their sister Lucy.
Getting an Early Start
Stan is the prudent brother. He knows that beginning to invest at a young age maximizes his chances of being able to retire at the time and in the lifestyle of his choosing. He starts contributing $5,000 each year to a Roth IRA. After 10 years, his contributions have totaled $50,000. Ollie is a perennial procrastinator and saves nothing during the first decade of his working years. Ollie then has a Prodigal Son moment. He realizes that he has been wasting time and squandering money long enough. So he decides to begin annual $5,000 contributions to a Roth IRA.
After making contributions for 10 years, Stan finds that the expenses of Homeownership and raising a family leave him with no money to invest. So from this point until retirement he makes no further IRA contributions.