Since estate planning is really about the next generation rather than about one’s own, it quite often occurs that our conversations with Geyer Law clients “branch off” into discussions about the best way to pass on wisdom about money management to younger family members.
And since in estate planning, more than in other types of legal discussions, we’re reminded how fleeting life can be and how precious time is, it gives us attorneys the chance to muse on the impact of time on the value of money.
The National Endowment for Financial Education published a document on this very subject, comparing three different hypothetical scenarios:
- Scenario #1: Starting Early
In this scenario, an individual saves $1,000 a year for ten years, starting at age 16 and going through age 25, then puts no more into the account. By age 50, assuming an annualized 9% rate of return, the $10,000 would have grown to $131,010.
- Scenario #2: Starting Later
This individual does not begin to save until he is 26 years old, but then saves $1,000 every year, investing a total of $25,000. At his age 50, making the same 9% assumption, the account is worth $84,701. With $15,000 more dollars in, the ending value is much, much less.
- Scenario #3: A Lifetime of investing
The individual saves $1,000 each and every year beginning at his age 16 and continuing up to his age 50, investing a total of $35,000. At age 50, the account would be worth $215.715.
Scenario #2 is missing the earliest ten years. That is what makes the results of this scenario so disappointing compared to the other two.
When one of our Indiana estate planning clients asks us for wisdom to share with their children – we use this illustration from the National Endowment for Financial Education to teach about the impact of time on the value of money!
– by Corrina A. Smith of Rebecca W. Geyer & Associates