It probably doesn’t come as much of a surprise that the earlier you begin to invest the more money you can accumulate, but just how much more? In this example even a modest saver can benefit by saving $250,000 more just by starting a few years earlier. Click on the thumbnail below to open the full-size image.
Here we have two individuals, Susan and Bill. Both save $2,000 each year but Susan begins saving at age 25 and saves for ten years until she reaches 35 and stops investing. Susan invests $20,000 total. Bill on the other hand waits ten years and starts investing his $2,000 when he is 35 and continues to invest this amount until he turns 65. Bill invests a total of $60,000. Assuming Bill and Susan each invest their money the same and achieve 10% annual returns, Susan’s account at age 64 is $611,817 and Bill’s account is only $361,887.
As you can see, Susan invested only $20,000 over ten years while Bill invested $60,000 over the course of 30 years and Susan came out significantly ahead. Those ten years that Bill waited to start saving cost him a quarter of a million dollars at retirement. In this example it is important to also consider that we are using a very modest investment of $2,000 annually. If you are maxing out your IRA or 401(k) you can see that these numbers would be significantly larger.
Waiting can cost you time and money
- Many investors put off retirement planning until their expenses are lower, their children are older or markets look better.
- You may wait, but retirement won’t. Every day you delay means one less day your money has to work toward your goal.
- It’s never too late–or too soon–to prepare for retirement.
- Start today and invest as often as possible. Even small, regular investments have the potential to grow into significant amounts over the long term.
Image courtesy of JPMorgan
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
