Compounded Earnings

The best way to provide for your retirement is to save regularly. In addition, the earlier you start (read as NOW!) the better of you’ll be.

Let’s look at an example of two different savers – both are going to invest $250 per month, and both will average 5% annual returns on these investments.

Saver # 1 starts saving $250 per month, starting at age 20 and stops saving at age 30. Over this span, this saver invests $30,000 of their own money. If they leave the investment alone, it will be worth $224,000 when they turn 65.

Saver # 2 starts saving $250 per month, starting at age 40 and continues until they reach age 65. Over this span, this saver invests $75,000 of their own money. If they leave the investment alone, it will be worth $150,000 when they turn 65.

Saver # 1 clearly has an advantage – saving LESS of their own money yet ending up with a larger overall investment. This is due to compounding, or letting your investments work for you over time. Saver # 1’s money was invested longer, and the earnings on those investments also had earnings (this is compounding).

So, if you can, work your way to saving regularly – it will go a long way towards helping fund your retirement.