I think it's safe to assume most people don't want to rush time, but many people have had those "I can't wait until retirement" thoughts pass through their heads while being bothered or overwhelmed by work. I'd be lying if I said I wasn't guilty of this. However, for retirement to go as many people envision it, it takes planning in the decades leading up to it.

The thought of financially planning for retirement may seem stressful, but it can be a relatively easy process when you cut out some of the noise. You don't need Warren Buffett levels of investment expertise or seven-figure income. You just need time and consistency.

A smiling couple sitting together on a couch using a laptop.

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One table that can put the power of time into perspective

Years Invested Personally Invested Ending Value
10 $120,000 $191,200
15 $180,000 $381,200
20 $240,000 $687,300
25 $300,000 $1.18 million
30 $360,000 $1.97 million

Data source: Author calculations. Values rounded to the nearest hundred.

The above table shows how $1,000 investments pan out, averaging 10% annual returns over different spans. The specific numbers aren't important because they'll change with investment amounts and returns, but they highlight the power of time and consistency.

Time and consistency are crucial because they fuel compounding. Consider debt with interest: If you don't pay it off, the debt continues growing. Compounding in investing moves in the opposite (and more appealing) direction. If you reinvest your interest or dividends each time, they continue growing.

In our above example, someone invested $12,000 in year 1 and had a return of $1,200. In year 2, they're now making 10% on $13,200 ($1,320) instead of $12,000. In year 3, the 10% is on $14,520 ($1,452). The cycle continues, becoming more lucrative with each turn.

Let compounding do the hard work for you

When retirement is decades away, it can be easy to put off investing for it because you feel like you have time. However, investors who understand the power of compounding hold the keys to building wealth. More importantly, they understand that time and consistency are essential in allowing compounding to work its magic.

Looking at the table, notice how much wider the gaps (called capital gains) between money personally invested and ending values get with each five-year increment. At 10 years invested, capital gains are just over $71,000; add five more years, and capital gains jump to over $200,000. At 30 years invested, the investment becomes just under 5.5 times more than what was personally invested.

Most people can't build wealth by strictly saving money, but investing and compounding make it attainable for many people. It would take 50 years to reach $1 million by saving $20,000 annually. In our example, it took less than 25 years, and only $12,000 was invested annually. Compounding are arguably the greatest force in investing.

Growing your money is great, but keeping it is even better

If you know anything about the IRS, then you know they're always out to get their piece of the pie. Capital gains are no different. If you've owned an investment for a year or less, capital gains are taxed at your normal income tax rate. Capital gains from investments held longer than a year are taxed at a special capital gains tax rate.

Here are the capital gain tax brackets for 2024:

Capital Gains Tax Rate Single Filer Married and Filing Jointly Heads of Households
0% $0 to $42,075 $0 to $94,050 $0 to $63,000
15% $47,026 to $518,900 $94,051 to $583,750 $63,001 to $551,350
20% $518,901 or more $583,751 or more $551,351 or more

Data source: IRS.

To avoid capital gains taxes, eligible individuals should invest in a Roth IRA. A Roth IRA is a retirement account that lets you contribute and invest after-tax money and then take tax-free withdrawals in retirement. Roth IRAs allow you to invest in virtually any stock in a regular brokerage account, so if you're going to be investing for retirement, it helps to get tax breaks while you do it.