If you save $1000 per month and earn no interest, you’ll have $12,000 at the end of one year. What if this goes on for two years? You might naively think you’d have $24,000 saved, but an authoritative source says this isn’t right.
According to the Globe and Mail’s Pay Yourself First calculator, you’d only have $23,000 saved after two years of saving $1000 per month. (As of 2016 Nov. 2, the Globe and Mail finally dropped this calculator from its web site, but you can still find it here.) To see this, punch in an annual salary of $100,000 with 0% for the salary increases and 0% rate of return, and set the “pay yourself” rate at 12%, with one year of saving. The result is a retirement fund of $12,000 as you would expect. Now bump it up to 2 years of saving. The retirement fund jumps to $23,000.
I’m not sure where the missing month goes, but apparently every year after your first year of saving you lose a month. After 3 years of saving you have $34,000, and after 10 years you have $111,000.
I first wrote about these surprising results almost 7 months ago. I received a message from the Globe and Mail saying “Thanks for drawing the problem to our attention. We are investigating.” However, the calculator remained online for a long time.