• Frank Font

Opportunity Cost

Like most other people, I have Saturdays and Sundays off. But as someone who does not do much socializing on weekends, I would not mind getting a part-time job in addition to my future employment in the future. I want to take a minute to examine the time that I would be giving up and compare it to how much time it would afford me in the future. If we assume that I can make $15 an hour and worked 52 weeks, that will result in $12,480, but we will reduce it to $10,000 due to taxes. I will assume a 12 percent return without considering inflation. If this were done over five years and the remaining 20 years were used to allow the account to grow, the total amount would be $545,000. If contributions were made over the first ten years, then the amount increases to $950,00; over the first 15 years, $1,150,000; over the first 20 years, $1,250,000; over the entire 25-year period, you would have $1,300,000.

As you can see by the numbers, the closer you get to the ending point, the less of an impact it would have. We saw a 70, 37, 18 and finally, a 9 percent change in the total amount gained, respectively. This should be of no surprise since the closer you get to the endpoint, the less time the contribution has to compound. Every 5-year period of working would represent almost 1.45 years in you consider the number of additional days that you would be working. If we assume that you would need to spend $40,000 per year in retirement by working on weekends for the first five years alone, you would have bought yourself about 13.6 years of retirement. By working the first ten years, you would have earned yourself 28.75 years of retirement, given that you withdrew the entire amount by the end of the 25 years. The more intelligent thing to do would be to keep the money in the portfolio and remove the money on a per-year basis.

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