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Huge Financial Advantage – The Tale of the Twin Sisters

Posted by LearnEarnRetire on Thu, Apr 14, 2016 @ 09:00 AM

Tale of Twin Sisters

Getting to financial independence is elusive to most and it shouldn’t be.  Here is a story that breaks down the biggest component to get you to your financial freedom.  I tell this tale every time I speak to young people about their financial wellbeing and they tell me consistently this is one of the most powerful metaphors they have ever heard.  If you act on what I am about to share with you, it can literally change your life.

Now, couple this with the notion of NOT squandering your 20’s and you are quite literally going places!

The Tale of the Twin Sisters

Twin sisters, Angelina and Betty, were each flying home from their respective cities to Mom’s house for Thanksgiving.  They are both 35.  One thing we call all agree on, no one, absolutely no one, makes Thanksgiving Dinner like Mom.

On Thanksgiving Day Mom was working away in the kitchen and the twins went in to help.  She shooed them away and said, ‘You two don’t get a chance to see each other often, just break out another bottle of wine, pull up a seat at the dinning room table and catch up. I have it all under control in here.’

They were catching up when Angelina leans over to Betty and asks, ‘Are you doing anything for retirement?’  Betty said, ‘No, retirement is so far away, we have so much time… are you?’  Angelina replied, ‘I’m not doing that much, but at 25 I started sending $2,000 a year to Morgan Stanley where they invested it in a diversified portfolio of mostly mutual funds.  When I began, I told them this was for my retirement in about 40 years, or 30 years from now.  One year I made a bunch of money, another year I lost a little, but I usually make some.  Whatever gain I realize, I just have them reinvest it in my account.’ Then Mom came in with the turkey and the conversation changed.

When they each got home, their conversation about retirement keep resonating in their heads.  Betty, feeling a little challenged by her twin sister thought maybe my sister is right, we are not as young as we used to be, and called Northwest Mutual, opened an account, and begin to invest $2,000 a year.

Angelina started thinking about their short conversation as well and thought maybe my sister is right. We both make the same amount of money, yet she dresses nicer, her furniture in her apartment is new, and she just got back from Cabo and I have never been out the country!  So she stopped sending her annual $2,000 in to Morgan Stanley that year and started to enjoy more money to spend.

The Lesson

At 65, who do you think did better?  Angelina began at 25 but stopped at 34, so she only put in $20,000.  Betty invested from age 35-65 the same $2,000 a year. Therefore, she invested $62,000.

                                                                                          Angelina                      Betty

Age they began                                                                       25                              35

Age they stopped investing                                                    34                                65

Total Years Invested                                                               10                                31

Annual Amount Invested                                                   $2,000                         $2,000

Total Invested                                                                    $20,000                      $62,000


 Even though Angelina stopped, and only put in $20,000 versus Betty’s $62,000, and for that matter only invested for 10 years versus Betty’s 31 years, the power of compound interest worked powerfully to her advantage.  At 65, Angelina has a retirement nest egg of nearly $490,000 compared with Betty’s $334,055.  By the way, this example was calculated on a 9% rate of return.

                                                                                       Angelina                      Betty

Account Balance at 65                                                 $487,829                     $334,055


Total Gain                                                                       $458,892                     $272,055

Total Years Invested                                                            10                                31

Account Balance if Angelina Did Not Stop                $864,774

Total Invested                                                                  $20,000                       $62,000


The Warning

Young people usually don’t invest sufficiently for two reasons:

  1. They think the whole ‘investing thing’ is so complicated, so they do less than they could and less than they should
  2. They feel, ‘when I really make some big bucks, then I will get after it’

Both of these thought are each harmful and wrong!

The Lesson

Young people have to start the moment they hit the job market putting aside something for the ‘Golden Years.’  The experts say you need to get to the 12-15% of earnings, so both Angelina and Betty, in a big way, fell short of that assuming they were making median income (in 2015 that was $53,657 according to the Census Bureau).

But you vividly see that the real trick is ‘STARTING.’  Because of compound interest (you not only realize a gain on what you invested, but also on the interest to date you have received), the early years were the most important ones.

Another thing is even if they woefully underfunded their retirement, compared to many, they hit the jackpot in that of all Americans 46-64 years old:

  • 25% have nothing saved or invested
  • 46% have less than $10,000 saved or invested
  • 60% have less than $25,000 saved or invested

Suggested Action

  1. As you leave campus and are moving in to your earning years, make a plan BEFORE you make your housing decisions (apartment or home) or transportation decisions (auto). If you begin to invest from day one, you will get used to it and living within your means is easier (your means, includes funding your retirement nest egg as well).
  2. Begin with what you can but in from the early years of your career if you put your annual raise toward your 401k (or whatever retirement plan is available). In a short time you will be at your goal of 15%.
  3. NEVER invade these long term assets for sake of near term expenses. Many people violate this principle and live to regret it over time.
  4. Have an Emergency Account. There is a big difference between saving and investing.  You need a savings account earmarked for Emergency (6-24 months of living expenses based on your job volatility and personal factors).  Without one, if you get hit with an emergency you will be tempted to go into debt or worse, invade you long term retirement assets.


You can’t squander your 20’s.  Starting at 22 (or earlier) will propel you to a very nice financial outcome that one day you will be very glad you started.

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Topics: Retirement