Rabbi Akiva has been on my mind lately for several reasons.
- 1) Lag B’Omer is upon us and, according to tradition, the devastating plague that struck his 24,000 students due to their lack of mutual respect ceased on Lag B’Omer.
- 2) The Abie Rotenberg Journeys CD plays on repeat in my car, so I listen to the song about Rabbi Akiva multiple times a day.
- 3) Rabbi Akiva started his journey in Torah study at the age of 40. Having just passed that milestone birthday myself, I’ve been doing my own introspection.
On that last point, I received a question recently from a friend who also turned 40 and needed some direction. The e-mail said:
“I just turned 40 years old, but have virtually no savings. Baruch Hashem, I now have extra cash flow that I don’t need to just pay my bills. Any suggestions on what I can do in order to catch up financially?”
The most important aspect of successful investing is having a long-time horizon. While a 40-year-old still has a multi-decade time horizon to work and build their nest egg, starting to save 15 years earlier would have made their life a lot easier. After all, that money would have had a longer time to grow or compound.
Here are some things that someone with a financially late start can do to make up for lost time:
1) Maintain a high savings rate: While I can’t give you an exact number that you should save every year without knowing more information, I’d recommend shooting for at least 20% of your income. Obviously, if you can save more than that, even better. On the other hand, if 20% will jeopardize your ability to pay your bills, you either need to cut some discretionary expenses, or just save as much as you can. Keep in mind that saving a large percentage of your paycheck will likely be a difficult adjustment. That’s normal and healthy. You have a lot of ground to make up.
2) Invest aggressively: You don’t have the luxury of sitting in CDs, money market accounts, and short duration bonds. They give the illusion of being safe but are actually losing buying power with inflation. You need to invest in assets that will meaningfully outperform inflation in order to experience growth within your portfolio. This doesn’t mean you should invest in exciting deals or “opportunities” promoted by friends or acquaintances that promise mid-teen returns. It means getting sufficient exposure to the stock market to outpace inflation. This way you can invest aggressively without taking excessive risk.
3) Max out your tax advantaged accounts: Your funds will grow faster in accounts with tax benefits since there is no tax drag on your investments. This may include a corporate retirement account at work, such as a 401(k) or 403(b). If you have your own business, it may involve setting up a SEP IRA, Solo 401(k), or just contributing to an IRA. There are also Roth and Traditional options, depending on when you want to be taxed. It’s worth speaking to a financial advisor to get the most appropriate plan in place to tax efficiently save and grow your funds.
4) Work longer: As I am fond of telling my clients, working longer has numerous benefits. It keeps folks socially engaged, mentally sharp, and provides structure to one’s day. Financially, the benefits are even clearer. It allows you to delay withdrawing from your nest egg, gives you more time to save and a longer time for your savings to grow. Additionally, working for longer may allow you to delay taking social security. Social security typically offers a higher payout for those who wait up until age 70 to begin receiving their benefits. The ability to work longer, in some capacity, is the closest you will get to a silver bullet to solve the financial stress of having a smaller nest egg.
5) Downsize sooner: This suggestion may not be possible, and it will certainly be unpopular, but it’s a sensible consideration for many. A home is not a good returning investment, even though it may be a good lifestyle decision. A large home means more expenses that will eat away at your cash flow, leaving less money available to save for your future. If your personal circumstances permit downsizing, I recommend doing it sooner than later. You can trim expenses, save more money, and potentially move some of the equity you built in your home to an area with higher potential returns. Again, this suggestion is obviously scenario dependent, but something you should consider discussing with your financial advisor.
6) Avoid mistakes: Many people in their 20s and 30s have the luxury of dabbling in various get-rich-quick schemes and other narishkeit that won’t work out. Sadly, the days of losing money on crypto, real estate deals in Texas, hard money lending, and alternative investments are over for you. That’s for younger guys (it’s usually men who dabble in this type of speculation) who can afford to lose their shirt and still have more time to make it up. You should skip that speculative phase on your investing journey and go directly to the “keeping things simple and boring” stage. Ultimately, many investors realize that the key to successful investing is not to shoot for the highest returns, rather it’s to avoid these big mistakes. A slow and steady approach will help minimize the chance of big losses and keep you on a path towards success.
Back to Rabbi Akiva.
According to tradition, Rabbi Akiva’s transformation into one of Judaism’s greatest sages is linked to his observing water dripping onto a rock. Before Rabbi Akiva began studying Torah, he was an uneducated shepherd. One day while tending to his sheep, he noticed how continuous drops of water had slowly worn a hole into a solid rock. The realization struck him that if something as soft as water could penetrate stone through persistence, then Torah study, despite its difficulty, could shape his mind and soul over time.
Inspired by this insight, Akiva committed himself to learning, starting from the basics at the age of 40. He eventually became one of the most revered scholars in Jewish history, teaching thousands of students, and shaping the foundations of rabbinic tradition. His story is often cited as an example of perseverance, illustrating that consistent effort can overcome even the greatest obstacles.
In the world of personal finance, there is no sense in dwelling on past mistakes or missed opportunities. It’s important to focus on what you can do today to change the trajectory of your financial life. While incorporating new habits is never easy, as Rabbi Akiva’s story teaches us, with proper dedication and consistency it can lead to great results regardless of how late your start. The key is to start today!
