John Waggoner

USA TODAY

Out here in Exampleland, Pete and Frank always leave Philadelphia at noon and pass Helen and Irma in Altoona at 4:30, but no one will tell you how fast they're going. And when you're planning for retirement, you can always figure out what percentage of your income you can save, but no one here will tell you what you'll have when you leave the office for the last time.

Today we're going to show why, and what you can learn from that — because you can always learn something in Exampleland. We're going to start with Joe, who started saving for retirement at age 30 in 1975 and retired at age 65. Joe's younger brother, Ralph, also started saving at age 30, but does so four years later. You'll soon see why Joe hates Ralph, and it's not because Ralph briefly dated Abba's Agnetha Fältskog while visiting relatives in Sweden.

Joe invested all his retirement money in the Standard and Poor's 500-stock index and reinvested his dividends. So did Ralph. Each of them earned the median family income — half is higher, half lower. For Joe, that started at $11,800 in 1975, or $46,453, adjusted for inflation. For Ralph, who starts saving in 1979, that's $16,461, or $49,225 adjusted for inflation. Wage growth was a real thing in the 1970s.

Both Joe and Ralph saved 10% of their income each year for retirement. We use nominal dollars for our calculation — that is, not adjusted for inflation — because those are the kind of dollars you get deducted from your paycheck.

Why does Joe hate Ralph? Because Joe retired with $672,000 in his retirement account, while Ralph left work with $906,000 — a difference of $234,000.

As can only happen in Exampleland, both Joe and Ralph had identical savings plans, but they would end up with vastly different results. The reason was entirely due to accidents of birth. Joe retired at the end of 2009, shortly after the worst bear market since the Great Depression, while Ralph, who retired at the end of 2013, had time for his investments to recover and even grow larger.

What can we learn from this example? Several things.

•The stock market is a fair-weather friend. Returns from stocks are often the worst when you need your money the most. The recession officially lasted from December 2007 through June 2009, a period when both Joe and Ralph were likely to be laid off — and when their retirement savings took a massive hit. The stock market's losses would have made a tremendous difference in Joe's retirement lifestyle. If he were to start retirement with a 5% withdrawal, he'd get about $33,500 a year, vs. $45,250 for Ralph.

•Assuming you don't get laid off, consider working longer if the market is down sharply at your planned retirement date. Had Joe hung in for another four years, he would have retired with $1.2 million, assuming he kept contributing at the same rate.

•It's always good to be diversified, at least in the decade or so before you retire. Let's say that Joe moved to a typical balanced fund — 60% stocks and 40% bonds — in the decade before his retirement. He'd have been sitting on $845,000 in 2009.

The problem with examples, of course, is that they assume people do exactly what they should do, rather than what people really do. Joe wouldn't have had an index fund available to him when he started investing: The Vanguard 500 Index fund was still just a twinkle in Vanguard founder Jack Bogle's eye in 1975. Neither one would have had a 401(k) savings plan to start.

It would have been far more likely that Joe started investing in one the largest funds of the day. In 1975, that would have been the Dreyfus fund. It has returned an average 10.16% a year since 1975, vs. 12.15% for the S&P 500 with dividends reinvested.

Of the 10 largest funds of 1975, only two — the American Funds Investment Co. of America (12.96% a year) and Fidelity Puritan (12.5%) have beaten the S&P 500. It's worth noting that one of the 10 largest funds in 1975 was Dreyfus Liquid Assets, a money fund, which earned 6.68% that year. After the soul-searing bear market of 1972-1973, it would have been far more likely that Joe and Ralph would have chosen a money fund for their savings.

Finally, there are two other things to note from Exampleland. The first is that the main determinant of how big your account will be at retirement is the amount of money you put in. Had Ralph, the younger brother, put in 8% of his salary a year, rather than 10%, his account would have been worth about $725,000, and Joe probably would have forgiven him for beating him in the international whistling championship of 1988.

The second biggest factor is the amount of time you save. If Ralph had delayed saving for five years, he would have retired with $549,000 instead of $906,000.

Most important, you probably shouldn't focus on trying to figure out where the markets will be at any given point in time. It's time better spent doing more productive things, like alphabetizing your spice rack. Focus instead on how much you save and what you can do if things don't work out. And don't be like Joe. He's still bitter about Ralph's close friendship with Wolfgang Puck.