Mystery of the Missing Month of Savings

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.) 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.

Comments

  1. AnatoliNSeptember 11, 2013 at 8:45 AM

    And I thought I could trust G&M. Some leading financial newspaper :(

    ReplyDelete
    Replies
    1. Michael JamesSeptember 11, 2013 at 9:16 AM

      I suspect that the scramble to get a working business model for online content is all-consuming.

      Delete
  2. My Own AdvisorSeptember 11, 2013 at 9:23 PM

    I've found some other online calculators that are off, although I can't recall them off the top. Too bad they haven't fixed it yet.

    The G&M should have the same thing for a mortgage calculator, I would enjoying missing a payment :)

    ReplyDelete
    Replies
    1. Michael JamesSeptember 12, 2013 at 8:33 AM

      @Mark: Back when I had a mortgage my bank used to announce with great fanfare that I'd earned the right to skip a payment (with fine print saying I'd still owe the money and would be charged more interest). I'm guessing this isn't what you had in mind :-)

      Delete
  3. LifeInsuranceCanada.com Inc.September 12, 2013 at 8:20 AM

    I betcha they're measuring something at the beginning of each month or the end of each month - something simple like that.

    Years ago when I was developing and testing a mortgage calculator for my website I was testing it against the banks' website. I found one of the big 5 banks using American numbers in it's calculations. When I notified them (and provided the fix), they suggested that I visit a branch if I wanted a mortgage amortization schedule.

    ReplyDelete
    Replies
    1. Michael JamesSeptember 12, 2013 at 8:34 AM

      @Glenn: You might have the explanation. But they seem to make the same mistake for every year which compounds the problem greatly.

      Delete

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