So many folks postpone saving for retirement "until I get on my feet". That day can be very illusive! Below is an example of how starting early gives you a head start towards a winning goal. ($5000 a year breaks down to $416.66 per month or $96.15 per week.)
Angie, age 30, decides to begin saving for retirement this year. She invests $5,000 a year and earns a constant 6% return. After ten years, she stops making contributions but lets the money remain in the investment, earning 6% annually, for her retirement at age 65. Dave, also age 30, does not begin to save for retirement until ten years later when he is 40 years old. From age 40 until age 65, he contributes $5,000 annually, earning a constant 6 percent return.
By the time Angie and Dave reach age 65, Angie will have invested a total of $50,000, while Dave will have invested $125,000. Intuitively, one might assume that Dave will have accumulated more. However, in 35 years, Angie will have a total of almost $225,000; Dave will have accumulated just less than $195,000.
Accumulated Amounts
Angie—$5,000 annual contributions for 10 years;
$50,000 total contributions
Year 1 $5,300
Year 5 29,877
Year 10 69,858
Year 11 Contributions cease
Year 15 93,486
Year 20 125,005
Year 25 167,419
Year 30 $224,045
Dave—$5,000 annual contribution beginning in year 11 for 25 years;
$125,000 total contributions
Year 1 $0
Year 5 0
Year 10 0
Year 11 Contributions begin
Year 15 29,877
Year 20 69,858
Year 25 123,363
Year 30 $194,964
The numbers in this chart assume all contributions are made at once at the beginning of each year; 6 percent interest is calculated and applied at the end of each year. Source: WebCE
The secret is compound growth over time. Dave put aside $75,000 more than Angie but had fewer years of the money building on itself - compound growth.
Be $ smart, start saving early!
