Understanding the power of time and compound interest shows the benefits of starting your retirement savings early. Compound interest means that the interest on your investments will earn interest as well, thus allowing you to build a bigger nest egg.
Albert Einstein once said, “Compounding interest is the most powerful force in the universe.”
Who are we to argue with the man who gave us E=mc2?
Let’s look at an example of delaying retirement savings: Four individuals each desires to become a millionaire at age 65, but until now had no plan or knowledge of what would be needed to attain their goal.
Name, Age, Starting Balance, Monthly amount needed for $1,000,000 at age 65*
Katie 20: Starting Balance $0 Needed Monthly Contribution:$363
Pat 30: Starting Balance $10,000 Needed Monthly Contribution: $648
Susan 40: Starting Balance $20,000 Needed Monthly Contribution: $1319
Alex 50:Starting Balance $50,000Needed Monthly Contribution: $3026
*Assuming 6 percent
You have heard the saying “pay no or pay later.” Everything costs more down the road, but most especially your retirement! Time can be your friend or your worst enemy. A happy and secure retirement requires making time your friend.