Want a Comfortable Retirement? Heed Miss USA's Money Advice

NEW YORK, NY - AUGUST 05:  Miss USA 2013 Erin Brady attends CitySights NY 'Ride Of Fame' With 2013 Miss USA Erin Brady  on August 5, 2013 in New York City.  (Photo by Dave Kotinsky/Getty Images)
Dave Kotinsky/Getty ImagesMiss USA 2013 Erin Brady
Earning the title of Miss USA is no small feat. The winner must look good strutting around in a swimsuit and evening gown, all while charming the judges with her grace and personality.

As for intelligence, well, it's hard to really gauge when most of what you have to go on are the contestants' rehearsed responses. But this year's winner -- Erin Brady -- it turns out, has financial knowledge far surpassing what you might expect from a beauty queen.

In fact, what she has to say about money management is well worth heeding; she's also an accountant with a focus on retirement planning.

Beauty and Brains

In a recent Business Insider interview, Brady, 25, spoke about the biggest mistake young people are making with their finances today: namely, that they're not thinking about the future, and, consequently, not saving for it.

She clearly understands the plight of her generation: When you're burdened by student loans and excited to establish your independence, saving money is not easy, nor does it tend to rank high on the priority list. But Brady rightly declares that it's crucial to "pay yourself first."

Brady practices what she preaches. She opened a Roth IRA upon graduating from high school, and has set up automatic payroll deductions to contribute to it from every paycheck.
Now, she says, she has money set aside should she need it in the future.

Given her early commitment to smart money management, it's no surprise that Brady chose to major in finance as she worked her way through Central Connecticut State University. After graduating, she became an accountant and, prior to winning the title, was employed as a senior accountant in the retirement planning division of Prudential Financial.

Well Said, Miss USA!

Starting early is indeed the key to amassing a comfortable financial future. It establishes the savings habit, and the more years you have to save, the less you need to save each year to reach your goals (which means you won't struggle to save unfeasibly high amounts when you're older).

Even if you didn't start investing in high school, it behooves you to get the ball rolling today. Consider this chart that shows examples of how much you'd need to save each year to have roughly $1.9 million by the age of 65. It assumes an average annual investment return of 8 percent, which is roughly the market's long-term average:
Age You Begin to Save Annual Contribution Needed
20 $5,000
25 $7,460
30 $11,215
35 $17,059
40 $26,435

As you can see, if you delay saving for retirement, you're liable to reach the point when you'll want to spoil your children (or pay their college tuition) at exactly the time when you'll also need to be earmarking serious chunks of your paycheck for retirement.

Financial guru Dave Ramsey's website shows another way the power of time makes a difference. Two fellows invest $2,000 a year. Ben invests from age 19 to 26 and then stops (a total of $16,000). Arthur invests from age 27 to 65 (a total of $78,000).

Ramsey assumes a 12 percent annual return on their investment (a bit higher than average, although the general idea plays out regardless of the exact rate), but here are the startling results of how much money each guy has at age 65:
Total Invested Final Amount
Ben $16,000 $2,288,996
Arthur $78,000 $1,532,166

As you can see, Ben (who invested less money) ended up retiring with more money.

How Does That Work?

This brings us to the second reason Miss USA's sage advice needs to be followed. The earlier you start, the longer you can allow your money to work for you.

And "work for you" is exactly how the concept of compound growth works: Invest a certain amount, say, $1,000. That year, your stocks gain 10 percent, leaving you with a total of $1,100. The next year your stocks gain the same 10 percent, but it amounts to more, bringing your total to $1,210. You can see how this starts to add up over time, especially if you continue adding money.

Compound growth boils down to three main elements: reinvesting your gains back into your initial investment, achieving positive long-term returns, and using time to your advantage. The longer you allow your money to compound, the higher your portfolio will be.

So take Miss USA's advice (or encourage your children or grandchildren to do so) -- and allow the magic of compounding to take over your finances.

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19 Comments

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dansupton

ramsey.....12% return - what a pipedream

I saved more than the amount he mentions at that age and don't have anything near 2 million

August 15 2013 at 9:38 PM Report abuse +1 rate up rate down Reply
bgzcle

Information anyone can use.

August 15 2013 at 12:15 PM Report abuse rate up rate down Reply
bgzcle

Information anyone can use.

August 15 2013 at 12:15 PM Report abuse rate up rate down Reply
wendylile

A class in finances should be a must in the high school curriculum. Learning how to save, how to balance a checkbook, how to finance a mortgage, etc. is very important.

August 14 2013 at 9:36 PM Report abuse +1 rate up rate down Reply
cslinz62

It's just common sense to save money. Not pick up smoking, drinking & doing drugs. But........
most do not and there are more people in the world earning $10.00 or less an hr. It is what it is. Most of us won't have a pot to piss in at 62. The government will have to take care of us or else. And who says you're guaranteed tomorrow. For starters, all the older homes & apt. complexes....that aren't kept up, start lowering the rent. My apt building is 30yrs. old. My rent should be going down instead of up. The value of houses should go down too like mobile homes. Wiring gets old. Plumbing gets old.

August 14 2013 at 7:26 PM Report abuse +2 rate up rate down Reply
1 reply to cslinz62's comment
jai.hye

Well said....it makes absolutely no sense for older buildings not well maintained continuously going up in rent and there is most definitely no sense in the greed one is faced with when it comes to buying a home, a vehicle, etc. Buying an older home for an outrageous amount of money that is in need of many repairs is nothing shy of insanity.

August 15 2013 at 12:22 PM Report abuse rate up rate down Reply
paddleman1928

open an IRA to have the gov't nationalize it? I don't think so. The gov't is taking away social security, cutting medicare to a meaningless program. They will go after your retirement money also.

August 14 2013 at 5:40 PM Report abuse -2 rate up rate down Reply
2 replies to paddleman1928's comment
labourboss

Your tinfoil hat needs adjusting!

August 14 2013 at 8:53 PM Report abuse rate up rate down Reply
sam54ct

Keep it in your pillow, see how that works for ya in retirement.

August 15 2013 at 8:02 AM Report abuse +1 rate up rate down Reply
Robert & Lisa

Why save when Obama and his cronies will just take it away from you?

August 14 2013 at 4:36 PM Report abuse -1 rate up rate down Reply
2 replies to Robert & Lisa's comment
labourboss

Not like the conservatives who want to do away with social security and Medicare. If you don't believe me just read the Ryan plan.

August 14 2013 at 8:54 PM Report abuse +1 rate up rate down Reply
1 reply to labourboss's comment
wendylile

I've just written a book that encompasses Social Security and Medicare. First of all, it's Obamacare that will deplete billions from the Medicare plan and increase premiums. Secondly, Social Security benefits will not be depleted but will become less by 2030 unless something is done now. With more people on disability than ever before and the high unemployment, the system is now strained. Suggesting new ideas is not linked with wanting to "do away" with these programs.

August 14 2013 at 9:41 PM Report abuse -1 rate up rate down
sam54ct

Reagan raised taxes seven years in a row, after cutting taxes, and enacting the Tax Reform Act of 1983, that allowed him to become the first to drain the SS surplus. All with the hope of paying for those tax cuts. It failed, as did the increased taxes, the result, our first 3.5 trillion in debt.

August 15 2013 at 8:03 AM Report abuse +1 rate up rate down Reply
Robert & Lisa

The advice to start planning early is excellent. But with progressive Democrats in charge spending far more of our money than we can afford, what investment is safe? Certainly not dollar valued ones.

August 14 2013 at 4:33 PM Report abuse -2 rate up rate down Reply
1 reply to Robert & Lisa's comment
sam54ct

You can type, now learn to read. Republican administrations have outspent Democrat administrations throughout history. It's there for the reading.

August 15 2013 at 8:04 AM Report abuse +1 rate up rate down Reply
Jeff King

Ramsey is an idiot for assuming 12%

August 14 2013 at 3:31 PM Report abuse +2 rate up rate down Reply
Rich and Famous

It is a great idea to start saving money for retirement. I plan on saving now so that I will have millions to spend when I retire.

August 14 2013 at 2:39 PM Report abuse rate up rate down Reply