Would You Trade That Fancy Cup of Coffee in your Hand For a Million Dollars?

By on September 16, 2003 in Current Events, Retirement with 4 Comments

This headline is not a rhetorical question.

Most federal employees work in larger cities. It’s easy to stop by the local Starbucks, conveniently located on your way to work, and pick up a cup of cappuccino or vanilla latte. How much will that cost you? If you are like me, I don’t get the standard brew of the day sitting in the black potholder with a name like “Columbian dark roast.” Even when walking down K Street in Washington in the middle of a hot, steamy August morning, (or at the Super Target in Huntsville, Alabama on an even hotter and steamier August day) I will opt for the vanilla latte (grande size) and it will set me back a little more than four bucks.

A lot of us do it without thinking about the total cost of this habit. But national columnist and financial guru Scott Burns has given it some thought and he has provided readers with some math that may make you think.

Burns poses the question, “what happens if you invest the money instead of drink it?”

Most of us never ponder this question. But Burns assumed a cost of $3.50 a day for a cup of gourmet coffee. That comes to $1277.50 a year (not including the amount you have given to the governor of the state where you purchased the coffee.)

He assumed the coffee drinker was 25 and earned $30,000 a year and inflation averaged 3 percent a year. She invested the money in a stock index fund (think of the C fund in your Thrift Savings Plan which is a stock fund that tracks the S&P 500 stock index). This fund is likely to average 10 percent a year until retirement age which, if you are in the FERS system and will qualify for Social Security, will put you in your mid to late 60’s.

Using these assumptions, our coffee drinker would have accumulated $983,614 by the time she was 67 years old if she had passed on the fancy coffee and, instead, put the money into the TSP common stock fund.

So what does this tell you?

First, invest in your TSP stock fund – especially if you are just starting out in Federal service. That $3.50 a day may not seem like a lot but it can add up to big bucks when you want to retire. And, while 30 or 40 years seems like a long time away, most of us are surprised at how quickly you find yourself in that age bracket.

Second, investing is easy. Uncle Sam has made it simple and as risk-free as an investment plan can be. You just need the discipline, the foresight and the financial savvy to take advantage of it. If you are in your twenties and just starting out, take advantage of the S and I funds as well as the C fund.

Don’t put all of your money in the super-safe G fund. If you are going to do that, you may want to just drink the coffee instead.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.


About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.