Cutting Back on Coffee Could Perk Up Your Future
According to a report by Acorns, the average American spends about $1,100 on coffee each year, rather than making it themselves.1 If you skipped your trips to the local café and invested the money instead, you could increase your total retirement savings.
The power of compounding
With lots of time, compounding the earnings on your coffee money could help it grow to a fuller pot! The chart below shows how. In the first scenario, an employee defers 6% of his or her $53,508 salary ($3,210 per year) into a workplace retirement plan such as a 401(k). In the second scenario, the same employee puts the additional $1,100 of coffee money in the 401(k), increasing his or her retirement contribution to about 8% of salary ($4,310 per year).
Based on a $53,508 average annual salary
Key assumptions
- Yearly salary = $53,508 (median US annual salary of full-time wage and salary workers age 25 and over, Q4 2020)3
- Fixed rate of return = 6%
- Contribution assumed mid-year
Although retirement plan contribution limits may vary, it is clear that forgoing that daily coffee and starting early can improve your chance of having the retirement savings you need. And it’s proof positive that time is an asset — your asset.
INSIGHTS AND ACTION STEPS
- Track your coffee spending.
- Decide how much you can cut back on coffee at the local café.
- Redirect these dollars toward increasing retirement plan contributions
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Important Disclosures:
MFS Fund Distributors, Inc. is not affiliated with LPL Financial or StrateFi Wealth Management.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Investing involves risks including possible loss of principal.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
1 Acorns 2018 Money Matters Report.
2 Adding an additional $1,100 to savings equates to an 8.1% annual contribution rate.
3 Source: US Bureau of Labor Statistics, Usual Weekly Earnings of Wage & Salary Workers, Table 3, Fourth Quarter 2020. Released January 21, 2021.
Hypothetical examples are for illustrative purposes only. This material should be used as helpful hints only. Each person’s situation is different. You should consult your investment professional or other relevant professional before making any decisions.
