When you’re young, time is on your side. But retirement is not that far away even though it may seem like it now. In fact, the earlier you start saving for retirement, the easier it will be to hit your financial goals and the less of a drain it will be on your budget over your career.
Compound interest is a simple concept – the money you set aside for retirement earns interest and the interest paid on your deposits also earns interest in the future.
Here’s an example:
Let’s say John is 20.
He starts saving for retirement this year and puts away $100 per month.
If his savings earn 3% until he’s 65, he’ll have approximately $115,000.
Now, Jane waits until she’s 30 to begin investing.
She puts away the same $100 per month and earns the same rate of return.
At age 65, she has significantly less than John – approximately $75,000.
Even if Jane contributed $150 per month, she still saves less than John, approximately $112,000, assuming the same rate of return.
Even when he contributes less, John earns more than Jane because of the magic of compound interest and starting early.
If your employer matches 401k retirement contributions, be sure to contribute. By participating, you’re receiving an immediate and sustainable return on your money. When combined with the power of compound interest, joining your company’s retirement plan is a no-brainer. Moderate and consistent investing is how smart investors grow their nest egg effortlessly and enjoy a comfortable retirement.
The take away is this: start early, contribute often and as much as you can afford.
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by Jenna, Vice President, Operations