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It usually has a big impact because you are adding another year of employment income, and at the same time effectively reducing a year of retirement where you might be drawing down your savings.
This underscores how important consistent work is for building wealth. We can’t always control it, but the difference between having 40 years of consistent income and having 36 years with some breaks in between, can have a real impact.
As an example, if someone works for 40 years and can save $15,000 a year, at five per cent returns, they will have saved just over $1.8 million in 40 years. If, instead, for four of those years, the person wasn’t working, and instead of saving $15,000, they had to draw down $15,000, they would have $367,000 less saved by the end of the 40th year. Of interest, 15 years later (maybe at age 80), assuming no drawdowns or contributions over this 15 year period, the gap will be $764,000.
For some people, COVID-19 has really shaken up their career plans. This doesn’t mean that your financial picture is in shambles if you miss some work over the years for any reason, but it does suggest that you may want to try to make it up at the end depending on your financial and health situation.
4. Try not to split up
Nothing hurts wealth quite like a divorce. There are many data points that speak to this, but anyone that has gone through one, knows the issues. Yet COVID is only creating an increasing number of divorces as a result of the strain and forced ‘togetherness’ of the past year.