A PB&J A Day Keeps Your Retirement Woes Away

Includes: JNJ, KO, PG, SJM, SPY, T, V, WMT
by: Eli Inkrot


A lot of investors are fixated on eventually funding retirement.

This article creates an illustration based on your typical lunch expenditure.

In the end, reaching your goals comes back to time and effort.

Recently I came across a report from Visa (NYSE:V) indicating that Americans spend an average of $2,746 per year on lunch. The link provides a breakdown of how and where this is spent (along with an infographic) but for now let's focus on the headline number: $2,746. That comes out to roughly $228 a month, $53 a week or $7.50 per day. That's good for a Chipotle (NYSE:CMG) burrito each and every lunch, on average.

Now to be sure the survey was not all-encompassing (comprising of roughly ~2,000 telephone respondents) and it was partly an advertisement for Visa's new app. Yet I found that stat interesting nonetheless. In a world where funding retirement causes so much angst, this seemed like a relatively straightforward and actionable piece of information.

If instead of spending an average of $7.50 per day on lunch, what would happen if you elected to eat a Peanut Butter & Jelly sandwich instead? We'll use round numbers. A loaf of bread, call it $2 or 8 cents a slice. Two slices equals 16 cents. A jar of peanut butter, maybe $5 with 20 servings. I'm making these numbers up (and to be frank that seems high on price, low on servings), but the idea is to generate a baseline. So perhaps 25 cents for your peanut butter and 25 cents for a comparable amount of jelly.

That's 66 cents for a peanut butter and jelly sandwich. Let's really up the ante and call it three peanut butter and jelly sandwiches a day, for a grand total of roughly $2 per day. (In reality you could mix and match, fruit, other sandwiches, etc.; the concept is figuring out what saving a bit of money looks like.) So instead of spending $7.50 per day, let's think about spending $2 per day on lunch. In this case you'd have $5.50 available to use as you'd please, or just over $2,000 on an annual basis.

Now let's think about what that $2,000 yearly savings could work towards if you decided to consistently invest. You could pick out your favorite companies and decide to become a partner each and every year. For instance, perhaps you'd like to own shares of AT&T (NYSE:T) to start. A $2,000 starting investment could begin providing $110 in annual income. Suddenly you have an extra 30 cents a day to work with (hello double serving of peanut butter) or you could choose to reinvest the funds.

In the next year, perhaps you pick up shares of Coca-Cola (NYSE:KO), generating $67 in annual income. Prior to considering increased dividends and inflation, you now have $2,177 to invest going into the third year. Perhaps you elect to pick up shares of Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ) and Wal-Mart (NYSE:WMT) along the way. After five years, you'd have an income machine generating well over $400 a year, with the propensity to be worth much more than $10,000. A simple choice -- meal out or meal in -- created a small daily savings gap that ultimately lead to a sizable investment balance.

Of course you need not pick out a new company each year (although J.M. Smucker (NYSE:SJM) seems like another applicable choice). You could make the process a bit simpler. If you invested $2,000 per year in an S&P 500 index fund (NYSEARCA:SPY), the tangible rewards begin to compound in the same manner.

At a 6% average compound rate, $2,000 yearly contributions would be worth about $12,000 after five years. After 10 years, the number would be closer to $28,000, closer to $78,000 after two decades, $168,000 after 30 years and $328,000 after 40 years of saving. Naturally you'd want to think in purchasing power terms, but there's nothing stopping you from increasing your contributions as general prices (and thus savings) increase in nominal terms.

Let's think about the $328,000 in value after a working lifetime, assuming you've increased your contributions to combat purchasing power. With a 3% yield, that equates to an extra $10,000 per year. Moreover, instead of thinking about a sustainable withdrawal rate, you could even think about double or triple this amount over a period of decades. The simple act of electing to go with a slightly less expensive meal has the power of providing an ample boost to your retirement.

Of course there's nothing preventing you from increasing this many times over. That is, you need not only rely on your lunch savings to fund retirement. As such, the numbers involved in turn can become many times higher as well. Perhaps $10,000 or $20,000 won't quite make it in retirement (although to be sure I'd contend that it'd take away quite a few "woes"), but a multiple of this would certainly go a long way.

In short it's not about selecting a daily PB&J over a Chipotle burrito, although that is an applicable example. The idea is to figure out a way to consistently set aside funds and allow them to compound for years. Saving $5 one day for lunch doesn't seem like a big deal, but if you do it consistently enough, it aggregates to a large ending balance. As illustrated above, a PB&J a day can keep your retirement woes away.

Disclosure: I am/we are long JNJ, KO, PG, T.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.