Krikorian: Motivating adult children to save for retirement

“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

– Albert Einstein

It’s never too soon to start saving for retirement.

A big challenge many parents face today is getting their adult children interested in saving money. When you’re in your early 20s the last thing you’re thinking about is saving for retirement. If you tell them they should start putting something away for retirement, their response will probably sound something like; “why do I need to start saving now, I’m only 20 years old? I won’t be retiring for another 40 or 50 years. I have plenty of time.”

The fact that they have “plenty of time” until they retire is the single biggest reason why they should start saving something now for retirement. Starting to save at such a young age allows the power of compounding to start working for them.

One of the biggest problems is that many young adults do not understand how compounding works. According to a recent report from George Washington University, two-thirds of young adults do not understand the power of compounding.

Compound interest makes a sum of money grow at a faster rate than simple interest. In addition to earning a return on the money you invest, you also earn returns on those returns, resulting in your money growing at an ever-accelerating rate. Put another way, compounding is the financial equivalent of a snowball rolling downhill. With each revolution, the snowball gets bigger because it picks up more snow every time around.

Motivating young adult children to save for retirement may be a difficult task, but that’s not to say that it can’t be done. Over the years I have met with a number of our clients adult children about saving for retirement. During every presentation, I provide the following hypothetical example to illustrate how the power of compounding can significantly increase their chances of retiring with more money in retirement.

Jack and John are 21 years old, work for the same employer and earn the same annual salary. Jack saves $5,000 at age 25 and $5,000 every year for the next 10 years. After age 34 he never saves another penny. John decides to wait 10 years until age 34 and starts saving $5,000 each year over the next 30 years. During this period, Jack and John’s investments both earn the same average return of 9 percent.

When they turned 65 years old, John ended up with $740,000 in retirement savings however Jack ended up with $1.1 million in retirement. How is that possible that Jack ended up with $355,000 more than John? They both earned the same average return and John saved $100,000 more than Jack. The difference was that Jack started saving 10 years earlier than John, and the additional 10 years of compounding is what turned $50,000 into more than $1 million of savings.

(Chart is located at “Investment Articles” link on our website at

With the uncertain future of Social Security, and pension plans going the way of the dinosaur, our children could end up being on their own when it comes to saving retirement. As a result, one of the best things we can do as parents is teaching them about the benefits of saving money now rather than later.

Free Upcoming Seminar: “Determining How Much Money You’ll Need to Retire.” For more information, visit our website at Martin Krikorian is president of Capital Wealth Management, a “Fee-Only” registered investment adviser located at 9 Billerica Road, Chelmsford MA. Martin can be reached at (978) 244-9254, or via email at, 

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