Are You Bringing Home The Bacon in Retirement?
By Beverly DeVeny, Chief IRA Analyst
Follow Me on Twitter: @BevIRAEdSlott
There are two major differences between saving for retirement and eating bacon. Bacon is bad for you and saving is regarded as good for you. Yet most of us eat bacon regularly and don’t save.
This led me to search for the average cost of a pound of bacon. According to the large city cost index, the average cost of a pound of bacon in November 2015 was $5.85.
What if we buy a pound of bacon each month? That comes to $70.20 a year. Now, we could give up bacon and save the difference, but I am not going to suggest that. Give up the bacon, egg and cheese sandwiches my son-in-law makes whenever the family gets together? That would never work in my family. So, what if, every time we buy that pound of bacon, we save an equivalent amount in an IRA?
Since it is unlikely that anyone would put $6.00 a month in their IRA, let’s say that at the end of the year, we take $100* out of our bonus and put that into an IRA. Let’s also assume a 5% earnings rate. After 20 years we will have accumulated over $3,000 in our IRA. If you are 20 years old and can save until you are age 70, you will have almost $21,000.
Keep in mind that at age 70 ½ you will have required minimum distributions (RMDs) from that IRA. If there is only $3,000 in that account then the RMD for a 70 year old is almost $110. That is enough to buy bacon for another year!
*I used $100 to make comparisons easy. If you save $200 a year you will double how much is in the IRA, $300 will triple your savings, etc.
Download this infographic, which illustrates the POWER of compounding with retirement savings.