From Roth IRAs to 401(k)s, retirees have many powerful tools to accelerate their savings. But many people don't take full advantage of those opportunities. In fact, not saving now rather than later is all too common -- and it could be the worst retirement planning mistake people make after they turn 40.
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Potential retirement is closer than you think
You likely already know about the magic of compounding. If you save $1,000 and it grows at 10% per year for 10 years, its future value is around $26,000. If you increase that holding period to 20 years, its future value is around $67,000. Increase that holding period to 30 years and that initial $10,000 investment becomes an astounding $175,000!
This is the key concept to understand: If you multiply your holding period by 3 times, your future value increases 6 times in value. The longer your money is invested, the bigger the disparity becomes.
This is what future retirees need to grasp. At 40 years old, retirement may still be decades away. But the power of compound interest starts working today. At age 40, you're already past the magical compounding decades of your 20s and 30s. But you still have plenty of time to save money. However, by waiting another five or 10 years, you'll be significantly limiting your money's ability to compound. So while there's plenty of time left until you retire, don't make the mistake of thinking you can take your foot of the gas pedal when it comes to saving.
