THE ABSOLUTE BEST WEDDING GIFT YOU CAN EVER GIVE YOUR CHILD!
This weekend we are attending the wedding of my college best friend, Clifton’s son. The couple will have college loans as the bride is currently in Medical School. As parents, Clifton and I ponder the choice of paying for an expensive wedding versus INVESTING IN YOUR FUTURE. And as two financially conservative men, we advise reducing the wedding size and cost and investing the money.
AVERAGE U. S. WEDDING COST
The average wedding cost $44,000 in 2018. Being a guy I have no idea where that money goes but I assume a large portion goes to serving your guest food and drinks. I have attended weddings where my wife plays the role of the “Executive Assistant” quietly whispering the names of people as we approach, often INCLUDING the bride and groom! Why do people spend so much money to feed people they hardly know?
GROWING CRISIS IN THE U. S. TODAY
Many young adults are graduating college with a mountain of debt. A friend’s daughter recently graduated Medical School and owes $400,000 in college loans! This is a life altering level of debt for a young person just starting ANY career!
Recent college graduates who are saddled with mountains of college loans are struggling to build up emergency savings; save up the down payment for a home; fully fund the matching percentage of their employer’s 401K; INVEST IN THEIR FUTURE!
PENSIONS IN THE PRIVATE SECTOR ARE DISAPPEARING – RAPIDLY!
Adding more stress, fewer employers today provide a pension. Several friends with little to no pension, have informed me they intend to work until 70+ NOT because they enjoy their career, but out of necessity.
THERE IS AN ALTERNATIVE – THE ABSOLUTE BEST WEDDING GIFT YOU CAN EVER GIVE YOUR CHILD!
Given the above realities some of the money spent on the average wedding could instead be invested to improve the possibility of a sustainable retirement and even speed up that retirement date!
LET’S LOOK AT A HYPOTHETICAL INVESTMENT OF $40,000 FOR A 25 YEAR OLD COUPLE!
If the happy couple were to invest in a small, private and romantic wedding, they could possibly save $40,000 and invest those dollars in a ROTH IRA, averaging ~8% for 40 years.
OPTION 1: INVEST $40,000 IN ROTH IRA
The couple can open two ROTH IRA’s and contribute the maximum of $6,000 each until they add the entire $40,000. Following year one deposit of $12,000, the couple would invest the remaining $28,000, in an S&P 500 ETF/equivalent ETF’s and withdraw monthly/quarterly/annually to place the maximum $6,000 each in their respective ROTH accounts annually. At the end of 28 months they will have deposited the entire $40,000 into their respective ROTH IRA accounts. The two ROTH accounts will have grown to ~ $45,330, at the end of 28 months assuming 8% return and assuming a safe investment in a low fee ETF, such as the Vanguard VOO S&P 500 ETF. See below calculations
OPTION 2: INVEST $40,000 IN TWO ROTH IRAs & CONTINUE $6,000 ANNUAL INVESTMENTS FOR 40 YEARS – $2,359,541
After watching this process for over two years let’s assume our SMART young couple realize that every penny accumulated in the ROTH IRA’s can be withdrawn TAX FREE in retirement and decide they will also continue making a combined $500 deposit each month for the next 38 years and accumulate per below calculation ~$2,359,541. Impressive. Assuming 8% return and assuming a safe investment in a low fee ETF, such as the Vanguard VOO S&P 500 ETF. See below calculations
OPTION 3: INVEST $40,000 IN TWO ROTH IRAs & CONTINUE MAXIMUM, $12,000 TOTAL ANNUAL INVESTMENTS FOR 40 YEARS – $3,805,562
But what if our young and smart couple realizing they will never have pensions sacrifice and continue putting in $1,000 per month into their ROTH accounts for the next 38 years. They will accumulate ~$3,805,562. {Assuming 8% return and assuming a safe investment in a low fee ETF, such as the Vanguard VOO S&P 500 ETF.} See below calculations
CONCLUSION
What do you think our young and smart couple will say as they prepare to retire on their ~65th birthdays regarding their decision. Who knows, but at least go into that conversation armed with the knowledge of what is possible.
I did not run this week’s blog by my wife who would accuse me of being too frugal in suggesting a $4,000 wedding, especially for a bride who has financial resources available to her. I can hear her now: A wedding is an opportunity………. {Even in my imagined conversations with my wife, being a typical husband I stop listening!}. YES – I AM IN TROUBLE – AGAIN!
If the couple or family can afford a BIG DEAL FLY ME TO THE MOON wedding, WITHOUT sacrificing anyone’s sustainable future – Enjoy and SEND me an invite {Consider wearing name tags please}.
I am NOT worried about the families and couples that can afford a nice wedding. Instead I worry about the young couple who cannot afford a $44,000 wedding and preced anyway. People who continuously make poor financial choices over the decades, tend to lack financial literacy and that lack of competency will result in a substantial short fall in your retirement years.
Although many brides and their families do not have the resources for a $40,000 wedding, families can set aside $4,000 or what you can afford for a financial gift. Invested as I have described, that could turn into $100,000 or more.
THIS COULD BE THE ABSOLUTE BEST WEDDING GIFT YOU CAN EVER GIVE YOUR CHILD!
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RETIRE WEALTHY BY ADDING AN IRA TO YOUR PORTFOLIO
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DISCLAIMER
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I started my first business at ~13 years of age. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or financial advisors.
