Most of us need to be saving rather aggressively for retirement -- and investing that money effectively. One of the smartest moves you can make is starting to save and invest as soon as possible -- ideally, 25 years ago.
OK, it's probably too late for that, but know that it's critical to not procrastinate. Your earliest invested dollars are your most powerful.
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Imagine you're 35 and you plan to retire at 65, in 30 years. Let's say you put off saving for retirement for five years. (You're only 35, after all!) Here's how your money will grow, from age 40 to 65:
|
Growing at 8% for |
$7,000 invested annually |
$15,000 invested annually |
|---|---|---|
|
5 years |
$44,351 |
$95,039 |
|
10 years |
$109,518 |
$234,682 |
|
15 years |
$205,270 |
$439,864 |
|
20 years |
$345,960 |
$741,344 |
|
25 years |
$552,681 |
$1,184,316 |
Calculations by author.
That's impressive, but what if you'd started socking money away right then, at age 35? Your money would have 30 years, not 25 years, in which to grow. Investing $7,000 annually would get you to $856,421, and $15,000 annually would have you at $1,835,188 -- a big difference!
Your nest egg will be growing more powerfully in your later yours, so a head start can really help. Here are a few other things to know:
- For best results, have a solid retirement plan. Know how much income you're shooting for in retirement and how you'll get it.
- Remember that Social Security isn't likely to deliver nearly as much as you'd like. As of April, the average monthly Social Security benefit was only $1,915 -- or about $23,000 on an annual basis. (Note that there are ways to increase your Social Security benefits.)
- Make good use of retirement accounts such as IRAs and 401(k)s, as they offer tax breaks.
- Your money can grow effectively over long periods simply in a low-fee index fund such as the Vanguard S&P 500 ETF.
So start (or continue) investing! You'll thank yourself later.
