You want to begin saving early when you get that first job. Enroll in your company’s 401(k) plan and save at least as much as the company’s match. Don’t leave any free money on the table. Then you can begin enjoying the magic of compounding. The U.S. Department of Labor describes this magic, writing:
Compounding investment earnings is what can make even small investments become large investments given enough time.
How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you’ve accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.
For example, the value of $1000 compounded at various rates of return over time is shown in the following chart.
Years
4%
6%
8%
10%
10
$1,481
$1,791
$2,159
$2,994
20
$2,191
$3,207
$4,661
$6,728
30
$3,243
$5,743
$10,063
$17,449
Start Saving Early – For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.
Starting at 20 – If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop – and the account earns seven percent annually – your savings will equal $168,514 at age 65.
Starting at age 30 – If you don’t start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.
You can start compounding even earlier. Saving for your children and grandchildren puts years of additional compounding at their disposal. It could turn a poor grandchild into a rich grandchild if done correctly.
Action Line: Perhaps you can open a “Trump account” for your child or grandchild. And when you need help saving for your retirement, or theirs, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
P.S. If you have a child or grandchild entering the workforce for the first time, download a copy of my free Special Report: How To Invest After Graduating College and send it to them today.
