Save for Retirement - Early is Better than Late

By Jamie Jacoby

We all should plan for our retirement. The worst thing that can happen is to reach an age where you don't want to work anymore, and not be able to quit because you don't have the money saved to do so.

Most of us start saving retirement in small amounts when we first go to work, and then in larger amounts as we get older. This method works, but doing it the other way around works even better.

If money is put aside for retirement in larger amounts at a younger age, then the interest compounding grows the accounts to much greater sums. ***

As an example, if you put aside $2,000 per year starting at age 20, and the money returns 6%, then the money available at 65 would be $425,500. If you wait until you are 25 and make the same investment for 40 years the balance will be $309,500. The additional $10,000 invested early increases your retirement fund by $115,000.

As a matter of fact if you only invested from the time you were 20 years old to age 35, and stopped, you would have $314,000. This is more than the accumulation if you wait until age 25 to start and invest for 40 years.

But suppose you can get a better return than 6%? If you invested $2,000 per year starting at age 20 and up to age 65, and managed a 10% return, then you would accumulate $1,438,000. If you wait until age 25 and invest for 40 years you will only have $885,000.

In the instance of a 10% return if you only invested from age 20 to age 30 and stopped, you would have $927,000. All for a total investment of $20,000!

If you are young and working, it is wise to invest as much as possible in a retirement fund and leave it alone. Even if you stop investing later you will be better off than if you wait to make your investments.

Posted: 5/21/10
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