Suze Orman: Opening a 401(k) at 25 vs. 35 Could Earn You Hundreds of Thousands of Dollars

Suze Orman has some important advice about 401(k) investing that could save your retirement. 

Suze Orman is a personal finance expert with tons of advice about retirement. But perhaps her most important tip has to do with when you begin saving for your later years.

Orman recently explained the many benefits of opening a 401(k) ASAP. Here's what she had to say -- and some insight into why you should be sure to heed her advice. 

Opening a 401(k) early is crucial, according to Suze Orman

When speaking to young people, Orman made it clear that it is very important to start investing ASAP in order to avoid missing out on the best chance to build wealth. "If you are not taking advantage of your 401(k), you are making one of the biggest mistakes out there," Orman said. 

She went on to explain why she believes early investing is so important, giving a detailed example with some amazing numbers involved. 

"You are 25 years of age. You start putting $100 a month away right now into this account, and you do so every single month until you are 65 years of age. For 40 years. Do you know at the end of 65 you would have $1 million," Orman explained. "If you start at 35 rather than 25, when you are 65, you will have only $300,000. Those 10 years cost you $700,000." 

While this example may seem hard to believe, Investor.gov calculators show that Orman is spot-on if you assume you'll earn 12% average annual returns during the course of your investing career. 

And the reason for this huge discrepancy in your final account balance is simple. When you invest, your money works for you. You earn returns on your investments. You can turn around and reinvest the money that your money earned for you. This is called compound growth, because your money makes money. 

If you invested $100 and earned 12% in the first year, you would end the year with $112. In year two, you aren't investing $100 -- you're investing your $112. So you end that year not by making $12, but by making $13.44. And obviously, with bigger numbers and a decade of extra growth, this is going to make a huge difference in the amount you end up with. 

Should you follow Orman’s advice?

There is absolutely no reason not to follow Orman's advice and start investing right now if you aren't already. 

Even if you are past age 25, the fact still holds true that the sooner you begin investing, the more time you have for your money to work for you and help you build a whole lot of extra wealth.

Orman was specifically referring to putting money into a 401(k) when giving this advice, but you can still benefit from following her suggestion even if you don't have this account at work. You can open an account with a brokerage firm and choose another tax-advantaged retirement plan to start building wealth. So whether your employer offers retirement savings help or not, you should start working on growing your fortune today.