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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