A person who invests $100 per month in a retirement account beginning at age 20 and stops at age 26 and 4 months will have a bigger nest egg than someone who invests $100 per month beginning at age 26 and 5 months and ending at age 65.
The vast majority of the gains occur in the years closer to retirement. Using the average rate of return since the end of World War II for the S&P 500 with reinvested dividends, the younger investor’s $7,600 grows to $84,000 at age 45, $248,000 at age 55 and $734,000 – a 9,500% return on investment – at age 65.
While the numbers seem stark, the concept is easy. This is the power of compounding investment returns – it’s the earnings generated by the previous earnings. The earnings for a single month, the month that the investor turns 65, are more than $6,600 – not far off the original invested amount.
And that is how wealth accumulates.
As this example shows, it’s important to consider the long game. If you’re only looking out 20 years, it’s a much less impressive nest egg of less than $100,000. It’s over the next 20 years that the holdings more than sextuple.
Which brings us to climate science.
In a similar fashion, we are building up a wealth of carbon dioxide in the atmosphere, but the accelerating nature of wealth accumulation means that the effects of that buildup are much more severe the further we travel in time. For those suffering through record flooding and tornado clusters this year, and wildfires and hurricanes last year, that should be a scary thought.
Accurate information will be one of our most important tools as we move forward, and historically, the United States produces some of the best research in all areas of science. The nation’s researchers and institutions are highly professional, well-funded and almost always in the upper echelon in any field.
The Trump administration is trying to change this with regards to climate science. The director of the United States Geological Society, James Reilly – a White House appointee – has mandated that scientific assessments going forward will not contain computer-generated climate models that make predictions beyond 2040, well short of the end of the century predictions from prior assessments.
For the next National Climate Assessment, which should be released in about three years, there will quite possibly be no “worst case” scenarios presented. These political decisions are driven by the administration’s frustration with media focus on worst case and long-range predictions, but climate scientists around the world are concerned about the loss of a traditional high-quality source of data – the U.S. government. The Trump administration has decided to hide information that runs counter to their deregulatory agenda.
But does the buildup of carbon dioxide behave in the same way as wealth accumulation? The answer appears to be yes.
With higher concentrations of carbon dioxide, the planet retains more of the sun’s energy and gets warmer. Most of that retained heat can be found in the oceans and, not only does that impact coral reefs and fisheries, the warmer oceans pump more energy into weather patterns over sea and land. Storms get bigger and unusual weather events become more common.
Artic regions are warming the fastest. That heat melts permafrost, which releases vast quantities of stored greenhouse gases, and allows dark algae to gain a foothold on Greenland’s ice sheets so less of the sun’s energy is reflected back into space. All of this speed up the melting of glaciers, which compounds the warming effects across the world by holding onto more of the sun’s energy.
And 40% of carbon dioxide is released each year simply to meet the world’s demand for refrigeration and air conditioning. That demand is certain to grow with a warming planet.
It seems safe to conclude that money and atmospheric carbon dioxide both experience compounding effects.
In our quest for a solution to man-made climate change, we are no longer a twenty-year-old ready to sacrifice for a few years to reap big rewards later. We’re middle-aged with nothing in our retirement accounts and starting to get really concerned about how comfortable we’ll be at the end of our lives.
Or we’re in denial.