I have not stopped complaining about the state of retirement funding in the U.S., so I thought it was about time I made a few positive comments about how to fix it.

How does $30 million for your grandchild’s retirement sound? A painless, no-brainer $30 million.

It starts with something I rarely talk about here in Wealthy Retirement: small caps. Yes, they are too volatile for many of us in the over-50 crowd, but that volatility really pays off over the long run… assuming you have a long run left.

In this case, we are talking about 65 years.

It takes 65 years because this whole exercise is about giving your newborn grandchild $3,000 now and $100 each month until their retirement at age 65.

Put the money into a small cap value index fund, the kind that has returned about 12% a year for forever, and that little darling will amount to $30 million at age 65.

Don’t have an extra three grand to kick-start the fund? Just $100 a month is worth $23 million.

Now, let’s add some reality to the equation.

Every person reading this knows that between here and there, your grandchild will need braces, tuition money, a down payment for a house and a hundred other things that will come up between birth and age 65.

So, even with the best of intentions, unless you have it wrapped up very neatly in a very tight trust – which on its own, of course, doesn’t guarantee anything – some money will leak out for other purposes.

So let’s look at a couple more realistic possibilities.

Let’s imagine you stop contributing when your grandkid turns 21.

At that point, you’d have about $149,000 in the fund. But, if all they do is leave it alone, by age 65 they will still have $28 million.

But reality comes back into the picture at age 30. They need a bigger house for your great-grandkids, so they pull out $100,000 from what at that point should be about $436,000.

(Remember, that $436,000 is assuming no further contributions between age 21 and 30.)

The balance would drop to $336,000. If they left it alone from then to age 65, they would still have $21 million at age 65.

Let’s assume we see another $100,000 taken out at age 50 for some reason – medical expenses are always a possibility. The fund would drop from $3.6 million at that point to $3.5 million.

But even so – if they can leave it alone from here on out – the fund would still have $20 million when they reached 65 years of age.

Heck, even if we assume you have five grandkids and the fund is there for all of them, that’s still $4 million apiece.

If all they do is draw 4% a year from their share, that’s $160,000 a year. I know with an inflation adjustment, some of the pop comes out of these numbers, but come on… $4 million each is a heck of a bunch of money!

But, here comes reality again.

Let’s assume you do what most folks do and set up no recurring deposit, and your grandchild waits until they leave college to begin saving for retirement.

That’s optimistic, I know. Getting kids to save in their early years of employment is all but impossible. But let’s stay positive.

That $100 a month between 21 and 65, even at 12% a year and with no withdrawals – which we know won’t happen – would result in only $1.9 million.

The first 21 years without contributions just cost them $3.6 million each.

Which brings us to the real meat of the whole retirement issue…

Time

It isn’t how much you have to start or even a lump sum. It’s how long the account has to go up and down and average out.

And yes, the first couple of years – even though there is very little money in the fund – make or break the whole equation.

Let’s look at starting the fund at age 10, when your grandchild might be able to grasp what you’re doing for them.

With zero withdrawals, $100 a month from age 10 to age 65, and an average 12% return – but without the initial kicker amount of $3,000 – that total amounts to $7.1 million at age 65.

That $12,000 not contributed over the first 10 years just cost your grandkids $16.6 million.

Or you can plop down about $12,000 at birth, never contribute another dime, and hide it from them until retirement (I have no idea how to do that, but it would be a great trick), and you are back to $28 million.

How do you think it would feel to have $28 million dropped in your lap at age 65?

This is so compelling, I am surprised there isn’t an easy, airtight and legal way to set this up and lock the recipients out of it until retirement.

Paul Simon said it best back in the ’60s in “A Hazy Shade of Winter.”

“Time, time, time, see what’s become of me…”

Good investing,

Steve