Often, people wait to save for retirement until they are well into their careers. But starting early
Question:
Often, people wait to save for retirement until they are well into their careers. But starting early can make a bigger difference than many people realize. Below, you will use the formula above to calculate the future value of $100 for three different scenarios to see how much it helps to start saving early. (For simplicity, assume interest is compounded annually.)
1. How much will you have when you are 65 if you invest $100 in the stock market when you are 25, and it grows at an average annual rate of 7% per year?
(Round to the nearest dollar.)
2. How much will you have when you are 65 if you invest $100 in the stock market when you are 30, and it grows at an average annual rate of 7% per year?
(Round to the nearest dollar.)
3. How much will you have when you are 65 if you invest $100 in the stock market when you are 35, and it grows at an average annual rate of 7% per year?
(Round to the nearest dollar.)
Takeaway:
If you consistently reinvest the returns from your investments, your initial investment will grow exponentially - slowly at first, but then faster and faster over time, since your growing investment will generate larger and larger returns and those increasingly large returns will get re-invested to generate even more returns.
Notice in the example above, that you ended up with almost twice as much money by investing for 40 years instead of 30. Those last 10 years doubled your retirement savings.
So the longer you can leave your money invested before you have to start taking money out for retirement, the more you will be able to take advantage of the increasing growth rate over time to generate really big returns at the end.
