Most people think that retirement is something that will work itself out. Many people believe that their employer has it under control, not realizing that more than likely their default account isn’t earning any interest. The vast majority of people will not save enough to last the twenty or more years of money that you’ll potentially need to cover your costs. I’ve helped lots of people get their retirement accounts going, recently convincing several more people to start. This post is to show you a possible solution to get there. I use 10% in my examples because I’ve averaged 14% and I was trying to be conservative with these examples. Remember that everyday that you wait, the cost to reach the same end value goes up and up so keep waiting at your own peril.
This is the way!
If a 30 yr old invests $100 a month for 35 years and at age 65 they retire, their retirement account with an average 10% interest for that period will have $379,662.
However if they had started at 20 yrs old and invested $100 a month for 10 years and then stops at age 30. At 10% interest they will have $20,484 in their investment account. If they don’t contribute another dime for the next 35 years, that $20,484 will grow to $668,568. Its over $300k more than if they had started at 30 and made deposits for 35 years instead of only the initial 10 years. If they had continued to add $100 a month, and had not stopped, for the remaining 35 years, they would have just over $1 million. By the way if you average 12% the end result will be $2.1 million and 14% will net you $4.5 million.
If you wait till age 40 to start, you now need to contribute $800 a month to just get to that 1 million amount. Another example of compound interest and time, if your parents had put just $500 in a trust fund at your birth and never added another dime to it, at age 65 that fund would have grown to $647,453.
That is the massive difference with the power of compound interest and time. The younger you start, the less you’ll need, it’s way easier to do, and later the more you’ll reap. $100 a month is way better than $800 a month, start early. Compound interest is when the interest that your money earns starts earning its own interest, your money is now working for you. If you can’t do $100, then do $50, or $25, or even $10. $10 will get you 104k, $25 gets you 262k.
Take one hour out of your life to learn about low cost index funds, and the Fire movement, and even about Bogleheads, and then learn how to open an investment account. Then go open a Roth IRA account with Fidelity, Schwab, or Vanguard.
Keep in mind, don’t ever take hardship withdrawals, never take money out for a down payment on a house, never pull money out till the end. If you do withdraw money early you stop the growth of your account, the magic of compound interest stops. Using the 20yr old with $100/mo as an example. It will take 26 years to get to 100k, it’ll only take another 6 years to get to 200k, another 4 years your at 300k, 3 more years and now your at 400k, you get the picture. At 65 you now have a million. They would have only contributed $56,000 of their own money and yet they have a million dollars. None of that happens if you withdraw the money early. The first 100k is the hardest to get to, but once you’re there, each 100k after comes faster and faster, unless you pull the money out. When you leave a job, transfer the funds to your Roth IRA or an IRA and continue to let it grow.
Things to remember:
What to do if the market is crashing: keep making your monthly deposits.
What to do if the market is at its all time high: keep making your monthly deposits.
Remember always make your monthly deposits no matter what you hear on the news. Don’t fall victim to hysteria, just keep making your monthly deposits.