3.1.3 Case study: Saving for their future

Sean and Helen began planning for their future soon after they got together. They decided they could put $250 a month into a savings plan and still do everything they wanted to do. With conservative investments, they earned an average of 3.5 percent interest on their savings each year. After 40 years together, they decided it was time for an early retirement. With over $260,000 saved, they had a helpful surplus to add to their pensions.

Their friends, Macario and Tala, began to save 10 years later. Although they saved a similar amount, $250 a month, they had only 30 years of savings when they began to look at financing their retirement. At the same rate of interest, an average of 3.5 percent over 30 years, they saved $158,000. They faced the choice of working several years longer or retiring with less money saved.

Note: These are simplified calculations. In any real-life savings plan, many additional factors would be important, such as rates of inflation, taxes and investment costs.

Lessons learned:

• Starting early makes a big difference to your total savings over time.
• Interest adds to your total savings over time.