It’s never too early to start an IRA


Lost Cave1My son is currently in Boy Scouts, so I find myself hanging around the scout meetings on Tuesday nights.    A couple of years ago when I finished the first investing book, I gave out copies to the boys in the troop.  Looking back, that was probably mainly a waste of money since many of them were sophomores or juniors and they just weren’t ready to read a book on investing.  I’m hoping a few of them will at least know where the book is when they were finishing college and maybe dive into it someday.

I’ve found myself lately trying to help get the boys who are turning 18 get on the right financial path.  A couple of them have jobs at fast food places.  This makes it possible for them to start an Individual Retirement Account (IRA).  I explain to them that while it may seem like an impossible task now, if they could just scrape together $1,000 to start an IRA, their lives could be so much better.  With $1,000 invested now, they can have something like $500,000 by the time they are ready to retire since their money will have more than 45 years to grow.  If they wait five or six years, that number drops to $250,000 since it will double one less time.  If they wait until they’re forty, they’ll be lucky to see $1,000 turn into $30,000 before they retire.

What I’d really like to see them do is get an account started now so that they can then start to get used to throwing some more money in as they get an extra $50 or $100.  If they got used to putting a portion of their paycheck into an IRA, maybe they would carry this on and be set for retirement by the time they were 30 or 35.  Unfortunately, it takes at least $1,000 to get started, which is a tall order when you’re spending your $7.50 per hour paycheck on your car and gas.  (If anyone from a mutual fund company is reading this, how about a special starter IRA for those under 18 with a $100 starting investment if you agree to contribute $50 per month for the next two years?  You could be collecting fees from several multi-millionaires in 30 years or so. )

For $1,000, you can start an IRA at Vanguard with the selection of two possible funds.  (Actually, you could earn the $1,000 at a job and then have someone contribute $1,000 for you, so you could spend the $1,000 year you earned and have an IRA.  You just need to earn at least as much as you contribute in the year.)  The best choice of the two funds available is their target date retirement funds, a fund that invests in  a ratio of stocks and bonds that Vanguard believes is appropriate for someone who will retire in 40 years, say.   With 40 years to retirement, the fund may be 20% in bonds and 80% in stocks at this time.  They could start there with $1,000, and then add money over the next few years as they were able.  Once they grew that into $3,000, they could then trade that first fund for something like an S&P500 fund or a total stock market fund since they really don’t need to have money sitting in bonds when they’re still in their twenties.

I’ve talked to two of the young men about starting an IRA.  The first one said he really wouldn’t be able to scrape together the money since everything he earns goes into the car.  The second one actually has been thinking about investing and said he would look at starting an IRA.  I’m hoping they both do it.  I was even thinking about matching their contributions or something to encourage them.

If you’re just starting a job, think about starting an IRA as well.  You’ll save about 10% of the money you contribute on taxes, meaning you’ll get to keep an extra $100 if you put $1,000 into an IRA.  If you’re the parent of a teen who is working, think about getting them to start an IRA as well, maybe matching their contributions to encourage them to invest.

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

4 thoughts on “It’s never too early to start an IRA

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  1. I like this blog. I’m 34 and have been investing in my Roth, off and on, since I was in my early 20s. Wish I’d been more consistent and diligent.
    I agree with most everything you post and am dedicated that, when/ if I have kids I will start the Roth for them and contribute to them. I’d think you’d not even have to tell them about the money until you are convinced they’re responsible enough to know never to touch it until they retire.
    A lot of parents could do this, and, it’s got to be the absolute best way to make sure your kids are taken care of after you’re gone.

    1. Yes, unfortunately, most people don’t even start to think about their own retirement until it’s too late, let alone their children’s retirement. There is something about saving up for an item that seems really large and yet is far off in the future that causes people decide to “live for today.” Sounds like you’re on the right track.

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