Are You Headed for Your Retirement Dream or Nightmare?
Many of us are saving for retirement, but few of us are saving enough. Are you?
When you envision your retirement, what do you see? A vacation home on the beach? Finally being able to travel around the world whenever you want? Whatever your ideal retirement life is, I bet it doesn’t involve anxiety over mounting medical bills and a dwindling cash supply. While most of us have dreams of grandeur when it comes to our retirement, few of us ever get there. Starting to invest in your retirement early gives you a serious leg up on being able to one day live your retirement dream, but the majority of us will spend our youth ignoring the enormous benefits of starting to save early for retirement, and instead spend all of our hard-earned cash on things that provide us short-term gratification.
The benefit of investing early for retirement is compound interest. Compound interest is your BFF when it comes to long-term investing because it allows you to earn interest on your interest. It works like this. If you invest $100 and earn 10% interest this year, you will have $110. Next year you’ll earn 10% interest on $110, so you’ll earn $11 and have $121. And so on. When you start investing early for retirement, you have more years to earn interest on your interest, which can lead to significant wealth generation. Let’s take a look at a real-life example.
If you start investing at 20 and invest $100 a month until you’re 60, and receive a 10% annual return, you’ll have $632,500 at 60. Only 8% or $48k of that will have been from your contributions. $584,405 will have been made from compound interest. (See, I told you it was your BFF). Let’s use the exact same scenario, but say you started investing at 30. In this scenario, by 60 you will only have $226,048. That’s a difference of $406,452 because you didn’t benefit from compound interest for 10 more years. On top of that, 16%, or $36k of your earnings will be from your contributions, instead of only 8%.
If you’re in your early 20s and reading this, you’re in good shape. Just start investing in a retirement account now. If you’re already 30 and you’re like OMG I’m f***ked! Better late than never. Start a retirement account today, and keep reading to learn how you can still…