I recall a review of a book about George Custer, a US military officer of the 1800s, that appeared in the New York Times some years ago. Customer executed the same risky battle plan three times, and the third time, he and the men he was leading were killed.
The moral of that story as stated in the review: people don’t learn from their mistakes; they repeat them over and over until the mistakes kill them. Luck only goes so far.
How does that moral apply to personal finance?
The Commerce Department reported this morning the most recent rate of savings by Americans as a percent of disposable income is 3.5%.
Now, if you make it onto Medicare (live to age 65), according to Fidelity investments, you can expect to face $230,000 in medical costs that Medicare doesn’t cover. If you live to age 67 or 68 (the age for full Social Security benefits for most people), well the average monthly check is less than $1,700. Can you live on that?
And along the way, you might want to buy a car or a home or send kids to college.
A 3.5% savings rate doesn’t cut it.
If you believe that magically you will be able to save more money later in life . . . good luck with that. That’s like building a financial plan based on a winning lottery ticket. It doesn’t happen for most people.
Plus any money you save later has less time to earn interest or dividends before you need to use it. You get the most value out of what you save now.