To take advantage of the power of compounding, it pays to start investing as soon as you can. The earlier you start, the easier it can be to achieve your financial goals.
Let’s look at an example. Investor A invested $1,000 per year for 10 years, beginning at age 30. Investor B also invested $1,000 per year, but began at age 45 and did so for 20 years. Even though Investor A saved less money — half as much as investor B, Investor A had more money — over 50% more — at the time of retirement, all because of starting earlier.
|Begins savings at age:||30||45|
|Savings:||$1,000 per year for 10 years||$1,000 per year for 20 years|
|Value at age 65:||$62,385||$38,993|
Putting time on your side *
Although Investor A invested significantly less than Investor B, the extra years of compounding interest are what boosted Investor A’s bottom line. Investor B will now have to save considerably more to catch-up. This is the cost of waiting, a cost that quickly adds up. It doesn’t matter what age you are — more time is on your side if you start saving for retirement today.
* Based on an average rate of return of 6% and compounded annually.
The results presented are hypothetical and may not reflect the actual growth of your own savings or investments. These values assume all dividends and earnings are reinvested and no withdrawals are made. The chart does not factor in fees or taxes which would reduce the overall value.